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It's lose-lose for everyone if US slaps tariffs on China tires
By John Gong |
September 3, 2009, Thursday
|
Print Edition
Print Edition
THE rubber tire, upon which automobiles run to change people's lives for the better and bring people closer together, unfortunately is pitting people across the Pacific against each other.
The tire issue involves the petition that the United Steelworkers union (USW represents 15,000 rubber workers among its 850,000 members in the US) filed with the US International Trade Commission (ITC) this year.
It calls for cutting imports of about 46 million tires from China by half, and it wrongly blames surging Chinese tire imports for the loss of 5,000 tire-manufacturing jobs in the US since 2004.
The case was brought under Section 421, which is the China-specific version of Section 201, the "safeguard" clause in the Trade Act of 1974 that authorizes the imposition of temporary trade barriers against increased imports that cause "market disruption," representing a "significant cause of material injury" to American producers.
In this case, the law leaves it to the US president to decide whether to adopt or ignore ITC's recommendation last month to impose sliding tariffs for a period of three years, starting from 55 percent in the first year. At this tariff rate, we can safely call a quit to the tire trade across the Pacific.
It is true that tires from China increased market share in the US rapidly since 2004, although the growth stalled greatly last year. But the assertion of market disruption and material injury to the US domestic tire producers borders on absurdity. None of the US tire makers has cried foul play by the Chinese side, nor has any of them signed on the USW petition.
In fact, they are too busy cranking out tires in China to meet a demand that is seeing double-digit growth rates, as China overtakes the US to be the world's largest automobile market this year.
For example, Cooper Tire and Rubber alone, an American company headquartered in Findlay, Ohio, is on course to produce and sell close to 15 million tires in China this year, about one third of the 46 million tires that USW alleges China dumped on the US market last year.
There is an economic reason why US tire makers adopted the strategy of producing high-end tires in the US and producing "economy tires," in this case replacement tires, in China. This is a classic example of Ricardo's theory of comparative advantage at work in international trade.
The US' comparative advantage lies in the technologies used to produce high-end tires and automobiles, while China's low labor cost shines in producing low-end replacement tires. The US sends expensive Hummers to China, while China returns with cheap tires.
No protectionism
The US accounts for about 13 percent of the US$31 billion worth of automobile imports to China, taking in more than US$4 billion of auto-related revenue, a number beside which the US$1.7 billion worth of Chinese replacement tires on the US market pales in comparison.
If US President Obama authorizes these punitive tariffs, there will be no winner in this case. Tire-manufacturing jobs will not go back to the US, but only shift to some other Asian countries instead.
According to Thomas Prusa, professor of economics at Rutgers University, more than a dozen jobs in the tire distribution and installation sectors in the US will be lost for every USW job protected. China certainly will suffer the greatest loss, with potentially 100,000 jobs gone for working families that rely on a merger US$150 a month salary.
The relationship between China and US is too important to be held hostage to a small special interest group, whose gains are not likely to be reaped anyway. President Obama has a historic opportunity before the G20 summit at the end of September to uphold America as a beacon of light against the tide of protectionism.
(The author is an associate professor of economics at the University of International Business and Economics. His e-mail: johngong@gmail.com)
The tire issue involves the petition that the United Steelworkers union (USW represents 15,000 rubber workers among its 850,000 members in the US) filed with the US International Trade Commission (ITC) this year.
It calls for cutting imports of about 46 million tires from China by half, and it wrongly blames surging Chinese tire imports for the loss of 5,000 tire-manufacturing jobs in the US since 2004.
The case was brought under Section 421, which is the China-specific version of Section 201, the "safeguard" clause in the Trade Act of 1974 that authorizes the imposition of temporary trade barriers against increased imports that cause "market disruption," representing a "significant cause of material injury" to American producers.
In this case, the law leaves it to the US president to decide whether to adopt or ignore ITC's recommendation last month to impose sliding tariffs for a period of three years, starting from 55 percent in the first year. At this tariff rate, we can safely call a quit to the tire trade across the Pacific.
It is true that tires from China increased market share in the US rapidly since 2004, although the growth stalled greatly last year. But the assertion of market disruption and material injury to the US domestic tire producers borders on absurdity. None of the US tire makers has cried foul play by the Chinese side, nor has any of them signed on the USW petition.
In fact, they are too busy cranking out tires in China to meet a demand that is seeing double-digit growth rates, as China overtakes the US to be the world's largest automobile market this year.
For example, Cooper Tire and Rubber alone, an American company headquartered in Findlay, Ohio, is on course to produce and sell close to 15 million tires in China this year, about one third of the 46 million tires that USW alleges China dumped on the US market last year.
There is an economic reason why US tire makers adopted the strategy of producing high-end tires in the US and producing "economy tires," in this case replacement tires, in China. This is a classic example of Ricardo's theory of comparative advantage at work in international trade.
The US' comparative advantage lies in the technologies used to produce high-end tires and automobiles, while China's low labor cost shines in producing low-end replacement tires. The US sends expensive Hummers to China, while China returns with cheap tires.
No protectionism
The US accounts for about 13 percent of the US$31 billion worth of automobile imports to China, taking in more than US$4 billion of auto-related revenue, a number beside which the US$1.7 billion worth of Chinese replacement tires on the US market pales in comparison.
If US President Obama authorizes these punitive tariffs, there will be no winner in this case. Tire-manufacturing jobs will not go back to the US, but only shift to some other Asian countries instead.
According to Thomas Prusa, professor of economics at Rutgers University, more than a dozen jobs in the tire distribution and installation sectors in the US will be lost for every USW job protected. China certainly will suffer the greatest loss, with potentially 100,000 jobs gone for working families that rely on a merger US$150 a month salary.
The relationship between China and US is too important to be held hostage to a small special interest group, whose gains are not likely to be reaped anyway. President Obama has a historic opportunity before the G20 summit at the end of September to uphold America as a beacon of light against the tide of protectionism.
(The author is an associate professor of economics at the University of International Business and Economics. His e-mail: johngong@gmail.com)
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