On late Friday evening, President Obama made the first major trade decision of his Administration. He decided to impose a 35% tax hike on imported tyres from China. In doing so, he not only hurt American families, already struggling with the high cost of transportation, our troubled auto industry, which relies on imports to stay competitive, but also has sparked a major international trade war. Already China announced dumping and subsidy probes of chicken and auto products from the U.S. Most expect this dispute to escalate even further with the potential of a fully fledged job-destroying trade war.
Make no mistake – there is near unanimous consensus that tarriffs like this are bad policy. A near-unanimous 93% of economists – from all accross the political spectrum – believe “tarrifs reduce economic welfare”. It is interesting to note that the Chinese government responded by stating “China has always steadfastly opposed trade protectionism,” and that China was “willing to continue acting in concert with other nations to promote a global economic recovery as soon as possible.” When China starts attacking you for deviating from free market policies, you really need to start thinking…
The day before the decision was made, Daniel Ikenson, Associate Director of the Center for Trade Policy Studies, wrote a study devastating the argument for subsidies. In it he notes that “economist Thomas Prusa estimates that “the tire manufacturing industry will experience little to no job creation as a result of the tariff. Under the best-case scenario more than a dozen jobs will be lost for every job protected.” Prusa estimates a net loss of at least 25,000 U.S. jobs if the recommended tariff is imposed. Under the best case, Prusa finds that higher prices and other inefficiencies stemming from the proposed remedies would sap U.S. consumers of $600 to $700 million per year, translating to an annual cost of $300,000 for every job “protected” in the tire industry”
A further side effect noted is that “consumer groups and other organizations have also expressed safety concerns about the impact of higher-priced tires on increasingly-pinched consumers. The likelihood that an increasing number of consumers will forego the replacement of old and worn-out tires presents a whole new category of risk and costs that are difficult to quantify economically..”
This decision is little more than payback to Big Labor, scared that their inefficient and corrupt practices are creating costly products that just can’t stand up to competition. It will hurt families, destroy jobs, and delay the economic recovery we desperately need. All to pay back a few union bosses for their 2008 political support.