New China Tariffs Pose Needless Risk
Obama decision on tire imports is bad trade policy.
by Clive Crook
Saturday, Sept. 19, 2009
In their first collective response to the global financial crisis, governments promised that, whatever else happened, they would not resort to protectionism. This was one lesson they had learned from the Great Depression, the governments said at November's summit meeting of the G-20, a gathering of the world's leading economies. In the 1930s, raising import barriers to protect jobs had only made all countries worse off. The policy was a disaster. Governments were wiser now.
Since last year's summit, all those governments have frequently reaffirmed that promise--and nearly as frequently have broken it. The United States is among the defectors. It is not the only one, by any means, but it is the most important one because of its size and because the world, much as it may resent the fact, looks to Washington for leadership on trade. On the eve of the forthcoming G-20 meeting in Pittsburgh, the Obama administration has taken this backsliding one step further. It has risked an escalating trade quarrel with China by applying an additional tariff of 35 percent to imports of Chinese tires.
In itself, you could argue, this is no big deal. New restrictions on Chinese tire imports affect far less trade than, say, President Bush's 2002 restriction on steel imports. That act did not lead to a global trade war, and there is no reason why this latest, much smaller resort to protectionism must do so. But if the dispute is small beer, then the economic benefits envisaged by advocates of the measure must be correspondingly trivial too. So why do it?
Actually, the most worrisome aspect of the decision is the rationale that the administration has offered for it. President Obama says he is standing on principle. Under the terms of China's accession to the World Trade Organization, the United States can raise temporary barriers as a so-called safeguard, if a surge in imports disrupts its domestic producers. Imports of tires from China have indeed surged of late. U.S. production has fallen sharply in the past few years, and plants have closed.
So the administration is not being protectionist, it argues. Just the opposite -- it is "enforcing" an international agreement. What use are such deals, Obama asks, if they are flouted? The need for "effective enforcement" of trade pacts is one of his main trade-policy themes. Apparently the president's message is that America's partners will always cheat if they are allowed to. Trade liberalization is all well and good, the administration says, but only if countries are forced to play by the rules. The Obama White House will be the enforcer. Its China tire tariffs are all about holding partners accountable.
Well, not really. First of all, this administration is itself not very good at playing by the rules. Arbitrators say that the U.S. government violated the North American Free Trade Agreement when it barred Mexican trucks from operating north of the border. It kept on doing so. The stimulus bill gave spending authority to states, cities, and agencies in such a way that federal procurement standards were not imposed -- inviting adoption of illegal "Buy America" practices and making it harder for trading partners to get a timely remedy.
Other countries have bent or broken the rules as well, to be sure. But the Obama administration has nothing to boast about, and it is in no position to set itself up as the one government that takes its commitments seriously.
More important is the fact that under a safeguard action, there is no presumption that China has done anything wrong in the tires case. It has not broken any rules. Neither the WTO nor any other independent adjudicator has deemed the surge in imports to be the result of unfair practices.
Washington's tariffs are probably legal, according to WTO rules -- tire imports have indeed surged, and the safeguard clause offers relief. But the safeguard procedures have nothing to do with "enforcement" in the sense of getting China to follow rules it has been breaking, which is how the administration has presented the policy. The idea, moreover, is not to revive the U.S. tire industry by attacking an unfair Chinese advantage. It is merely to provide breathing space so that domestic producers can adjust more gradually.
The fact that the China tariffs may be legal does not refute the charge of protectionism. One of the main setbacks to liberal trade since the economic crisis began has been governments' willingness to resort to WTO-conforming trade restrictions. For instance, a country may have tariffs that are lower than the rates they have committed themselves to at the WTO -- their so-called bound tariffs. So governments often have scope to raise their tariffs for the usual bad protectionist reasons, without actually cheating. In a similar way, the rules on subsidies, and on government procurement, have gaps and ambiguities that let a country put its own suppliers at an unfair advantage, in ways that observe the letter though not the spirit of the rules.
So protectionism is sometimes legal. That does not make it good policy -- still less, as the administration pretends, an effort to uphold the ideal of "free and fair trade." Of course, the Obama White House is aware of all this. In the China tires case, it knows how safeguards are supposed to work. In reality it is making a cynical political calculation. Dressing the action up as an effort to get tough on trade cheats delights the unions -- which seem to regard most imports as unfair by definition -- and thrills Democrats, who can use a little protectionist meat thrown their way at the moment, to take their minds off the administration's equivocation on health care reform and the public option. The tire tariffs have nothing to do with upholding high standards in trade policy...
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