I’m still plugging along on this case. I think it is shaping up to be quite important and may end up setting the tone for the bilateral trade relationship for the next 6-12 months, unfortunately in a bad way.
To recap Part I, the Obama administration decided to use a special safeguard mechanism that China agreed to when it joined the WTO that allows the US, and other Member States, to slap tariffs on Chinese imports that have surged and have harmed/posed a harm to US enterprises.
Why did Obama choose to make this decision? Remember that this was optional. There was no violation of trade law by the Chinese exporters, and US tire manufacturers were not the ones seeking redress. So why did this happen? Let’s take a look at the political context.
To simplify US politics in this area, let’s say that there are two sides, the free traders and the protectionists. In this case, the protectionists are represented by organized labor, which is traditionally protectionist. (In my opinion, organized labor lost the fight over US labor law sometime in the early 1980s and hasn’t had much else to do since that time except demonize imports.) Industry is sometimes protectionist and sometimes in support of free trade, depending on who specifically benefits in that situation.
In these cases, usually industry and, sometimes, organized labor will get together and petition the US government for redress. In this case, however, US tire manufacturers said no thanks, count me out. Why?
Because tire manufacturers had already shifted a lot of their business away from competing directly with the types of products represented by the Chinese exporters. Therefore they did not need, or in fact desire, protection in this portion of the market. Moreover, US tire manufacturers are doing a whole lot of business over here in China, including manufacturing products for the US market, and under no circumstances did they want to piss off the Chinese government or have to suffer increased tariffs.
That leaves organized labor, specifically the steel workers union (which some time ago subsumed workers who make tires). US labor is allegedly being threatened by the Chinese imports, so the union petitioned the Obama administration to slap on the tariffs and protect this industry.
So what was Obama supposed to do? Many people believe that this is pure protectionism, even if it is “legal” under China’s WTO accession agreement. Because of the recession and the danger of flagging trade, charges of increased protectionism have been hurled across the Pacific for quite a few months now, with both China and the US accusing the other of underhanded trade practices. Is now really a good time for this transparently protectionist move?
Certainly not. It’s a shitty time, and everyone knows it. Which begs the question as to why Obama felt that it was in his best interests to give the steel workers union what it wanted.
Let’s turn to the very first article sucked into my Inbox on this story, written by Harold Meyerson, a very good lefty columnist at the Washington Post whom I read on a regular basis. Meyerson spells out the political situation in stark terms:
Sometime before Sept. 17, President Obama has to make a decision that will tell us a lot about his commitment to American manufacturing.
(. . .)
The importance of this battle goes well beyond its impact on the tire industry. Much of Americans’ skepticism toward free trade comes from their empirically verifiable sense that their government has been reluctant to enforce its own trade laws — an issue that candidate Obama tackled head-on last year by his repeated pledges to enforce those laws.
(. . .)
The implications of Obama’s decision go well beyond tires. Section 421 was created to provide some protection for American workers while allowing China entry to our markets. If Obama opts not to enforce it, why would anyone concerned about American jobs believe such provisions in future trade agreements? Why would U.S. manufacturers maintain their domestic production if they know that none of the legal protections they’ve been promised will ever be invoked?
Meyerson gets one thing wrong, of course. The case has nothing to do with enforcing US trade laws. There is no violation here, and the safeguard move is a wholly optional decision in response to a surge of imports done legally. As I mentioned before, these Chinese exporters will be punished for being too successful.
All that aside, Meyerson explains that this is a test for Obama, an opportunity for him to show that he is looking out for the manufacturing sector. Knowing what I know about Meyerson, I think he also means that this is Obama’s test regarding support for organized labor.
It’s important to point out that this is something that the union wanted, and not necessarily the rank and file workers in the industry (I have no idea what their opinion might be). I say this because this decision will in no way help US tire workers. These jobs left the country a while ago because the manufacturing was too expensive, and if Chinese imports become too expensive, global manufacturers will move their operations to another lower-cost jurisdiction. Sorry tire workers, I know it sounded nice, but don’t count on that job coming back.
Organized labor, however, was very happy about the decision. The AFL-CIO, perhaps the most well known and powerful labor group in the US, posted this on their blog following the announcement:
President Obama took decisive action yesterday to provide relief to the domestic consumer tire industry in response to surging exports of tires from China. His actions will bring relief to many workers and their families and reverse course after eight years of neglect of trade laws by the Bush administration.
Utter bullshit, of course, but the politics work out quite well for them. I can already envisage the mailers they will send out to their membership and fund raising lists — “Victory Achieved” and all that. Lovely. Check out that AFL-CIO blog post for more misleading quotes from labor leaders.
OK, time for a summary. The backers of this came from organized labor. No one else, certainly not American consumers, will benefit. Obama is a Democrat, a political party that receives a great deal of support from organized labor. You can do the math yourself.
By the way, the tire case was by no means at the top of organized labor’s agenda. Unfortunately, Obama is too busy (or too much of a centrist) to give them what they really want at this time, so the tire case was in a way good timing. It allowed Obama to tell labor to shut up for a while. Good lefty that I am, the tire case is therefore bad for several reasons, not least of which is that organized labor (which I generally support, in theory) may feel hesitant about pushing Obama on some very much needed labor reforms in the United States, at least for a while. Giving that up for this crappy tire decision is really weak.
For more on this, read anything on this issue by Dan Ikenson at the Cato Institute (but for God’s sake, be careful reading anything else by some of the ideologues at Cato). Yes, Ikenson is a staunch free trader, but I’ve read his stuff for years, and he is by no means someone who traffics in misleading statistics and bomb throwing rhetoric.
Part III (sometime this week) will cover the aftermath of the decision, including the rhetoric from D.C. and Beijing, and a look at the substance and tone of the press coverage.