Tire-d Old Trade Policies
31/08/2010 12:00
President Obama has been making some encouraging pro-trade noises recently, after a protectionist first year. So it's troubling to see him veering off course again with a new proposal to boost American exports by cracking down on imports from China.
The Commerce Department last week proposed 14 new rules for how it handles antidumping and countervailing duty complaints against "nonmarket economies," a designation that in practice means mainly China and Vietnam. The thrust is to make it easier for U.S. unions or companies to get big duties slapped on their Chinese competitors.
For instance, the new rules would make it harder for individual Chinese companies to argue they should not be subject to antidumping duties, and they change how Commerce estimates the "true" cost of production in China when setting antidumping and countervailing duty rates.
Several centuries' worth of economic wisdom on the benefits of free trade shows that blocking imports won't boost exports. But don't take our word for it. Mr. Obama is proving the point himself. Consider how one of his earlier efforts at trade enforcement, the 35% tariff he slapped on Chinese tires last September, has worked out.
The measure hasn't boosted employment. In the first five months of this year, the number of workers at U.S. tire factories fell about 10% compared to the same period last year, according to an analysis from the pro-trade U.S.-China Business Council. The drop is part of a trend dating back at least a decade. Chinese imports consisted almost entirely of lower-end tires that high wages and other costs long ago made it uneconomical to produce in America.
Mr. Obama's tire tax has succeeded mainly in raising prices for low-income American consumers, by as much as 20% for lower-end tires like the ones China used to export to America. For a driver buying four new tires that used to cost $50 apiece, Mr. Obama has added $40 to the bill. That's enough for a frugal dinner out. While production has shifted to other countries, they aren't able to make tires as cheaply as China used to. Wholesalers also report shortages as supply chains adjust to countries not hit with the Obama tire tariff.
Then there's the indirect harm the tariff has done to American exporters. Mr. Obama's tire gambit, combined with a string of other antidumping and countervailing duty cases against Chinese steel, ribbon, paper and other products, goaded Beijing into launching antidumping cases of its own against Americans, on exports like chicken feet and nylon. Beijing is hurting its own economy with those actions, but its response does prove a political point about trade: An "exports for me, but not for thee" American trade policy won't work.
Mr. Obama and Democrats are anxious over high unemployment. Rather than attacking Chinese imports, the Administration would be better off focusing on the real American job killers—such as higher regulatory costs, the political allocation of credit, and the enormous tax increase awaiting if the 2001 and 2003 tax cuts expire. A commitment to free trade has always been one of America's strongest comparative advantages. It's also the best way to promote exports and create jobs.
The Commerce Department last week proposed 14 new rules for how it handles antidumping and countervailing duty complaints against "nonmarket economies," a designation that in practice means mainly China and Vietnam. The thrust is to make it easier for U.S. unions or companies to get big duties slapped on their Chinese competitors.
For instance, the new rules would make it harder for individual Chinese companies to argue they should not be subject to antidumping duties, and they change how Commerce estimates the "true" cost of production in China when setting antidumping and countervailing duty rates.
Several centuries' worth of economic wisdom on the benefits of free trade shows that blocking imports won't boost exports. But don't take our word for it. Mr. Obama is proving the point himself. Consider how one of his earlier efforts at trade enforcement, the 35% tariff he slapped on Chinese tires last September, has worked out.
The measure hasn't boosted employment. In the first five months of this year, the number of workers at U.S. tire factories fell about 10% compared to the same period last year, according to an analysis from the pro-trade U.S.-China Business Council. The drop is part of a trend dating back at least a decade. Chinese imports consisted almost entirely of lower-end tires that high wages and other costs long ago made it uneconomical to produce in America.
Mr. Obama's tire tax has succeeded mainly in raising prices for low-income American consumers, by as much as 20% for lower-end tires like the ones China used to export to America. For a driver buying four new tires that used to cost $50 apiece, Mr. Obama has added $40 to the bill. That's enough for a frugal dinner out. While production has shifted to other countries, they aren't able to make tires as cheaply as China used to. Wholesalers also report shortages as supply chains adjust to countries not hit with the Obama tire tariff.
Then there's the indirect harm the tariff has done to American exporters. Mr. Obama's tire gambit, combined with a string of other antidumping and countervailing duty cases against Chinese steel, ribbon, paper and other products, goaded Beijing into launching antidumping cases of its own against Americans, on exports like chicken feet and nylon. Beijing is hurting its own economy with those actions, but its response does prove a political point about trade: An "exports for me, but not for thee" American trade policy won't work.
Mr. Obama and Democrats are anxious over high unemployment. Rather than attacking Chinese imports, the Administration would be better off focusing on the real American job killers—such as higher regulatory costs, the political allocation of credit, and the enormous tax increase awaiting if the 2001 and 2003 tax cuts expire. A commitment to free trade has always been one of America's strongest comparative advantages. It's also the best way to promote exports and create jobs.
AUGUST 29, 2010
Source: online.wsj.com
Source: online.wsj.com
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