Patterico's Pontifications

9/13/2009

Tire Wars

Filed under: Economics,International,Obama — DRJ @ 4:06 pm



[Guest post by DRJ]

More Friday night news from President Obama regarding protectionist tire tariffs.

“Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.

In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers.
***
The decision to impose extra tyre tariffs followed a petition by the United Steelworkers union, which represents workers at many US tyre factories. Official figures show an increase in imports from 14.6m in 2004 to 46m in 2008.”

China says it will investigate the need for tariffs on imports of US poultry and vehicles, and the U.S. responded by warning China not to retaliate.

How seriously will China take a warning not to retaliate? After all, the world apparently realizes Obama talks the talk but he doesn’t walk the walk, something that could have serious ramifications:

“Governments around the world have suggested the U.S. talks tough against protectionism only when its own industries are not threatened. U.S. rhetoric on free trade also has been questioned because of a “Buy American” provision in the U.S. stimulus package.

The tire decision could have ramifications on issues such as the nuclear disputes with Iran and North Korea and on efforts to address climate change. China is the world’s third-largest economy and a veto-holding member of the U.N. Security Council.”

— DRJ

59 Responses to “Tire Wars”

  1. I swear, sometimes I think Barry is trying his hardest to destroy, or at least, hamstring this country. On Friday, he also decided it would be OK to have one on one talks with the Norks. It never ends with him…

    Gazzer (22ecdc)

  2. “Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.”

    Good for President Obama. I’m all for strong protective tariffs.

    Even a blind pig…

    Dave Surls (b1282f)

  3. Dave,

    So you would rather help a few thousand factory workers rather than every US consumer? That’s the basic argument of trade protection advocates. It hasn’t worked out all that well in the past.

    Soronel Haetir (2b4c2b)

  4. How are you when the other guy installs a high protective tariff ? Remember Smoot Haley ? If so, you’d be one of the very few. It used to be taught in schools when they taught history. Once again, Obama knows no history or economics.

    Mike K (addb13)

  5. This on top of the tariffs on steel pipe imported from China.

    And these people think they are smarter than the rest of us?

    Dave Surls need to think about:

    1) Who actually gets to keep the import duties

    2) How this is actually a tax paid by everyone who buys tires. And how this goes against O’s promise not to raise taxes on anyone making less than $250 K/yr.

    3) How the states will most likely apply their sales taxes on top of the duties. Taxes on taxes.

    How useful these idiots are.

    Dr. K (3569f8)

  6. China has responded:

    BEIJING (Dow Jones)–China on Sunday singled out U.S. automotive and poultry product imports for investigation after the Obama administration decided to put steep import duties on Chinese tires.

    Brother Bradley J. Fikes, C.O.R. (0ea407)

  7. China to U.S. – Nice bonds you’re selling, Geithner. We’re full up for the moment. Maybe Zimbabwe will buy some.

    daleyrocks (718861)

  8. Catering to special interests is something Presidents are prone to do early in their terms. Bush did it with the steel tariffs and I think that contributed to the decline in his ratings, especially with conservatives.

    DRJ (b0cdd4)

  9. Are there any U.S. owned tire makers left anymore outside of the private label market? I’ve lost track.

    Tire making is one of the dirtiest jobs I’ve ever seen.

    daleyrocks (718861)

  10. The interesting thing is that this tariff applies to tires in a segment of the market not served by U.S.tiremakers, and that they (ie.Goodyear, etc.) were actively lobbying the WH not to impose this tariff.
    This was done strictly to satisfy the USW.

    AD - RtR/OS! (212605)

  11. Here’s an interesting take. China has horrible import duties for things like spare parts (like 22%) which are used in industrial settings. For example, a new set of GM tooling for a buic sedan will have a 22% duty imposed on it.

    However, thay also have the equivalent of export duties. Chinese manufactured goods for the export market can actually be purchased in China – with an approximate 1,000% markup. This is to keep the Chinese buying Chinese-made, not-for-export goods.

    For example when I was in China back in December, a colleague took me to a local shopping center. He was looking at Hugo Boss golf shirts – a bargain as they were on sale for the equivalent of only $300 US (50% off). Go to your local department store and you can buy the same shirt for $50. I told him to wait until he came to the US in January where he could find the same shirt for probably #30 at the outlet mall.

    The duties are punitive, since good old Hugo gets to take some of the money out of the country – money that Chinese people earn through their work. But the Chinese want these “luxury goods” because the middle class is growing and they want to buy nice things (these are in short supply in China). So the government turns a “blind eye” to the counterfeits because the people want the illusion of quality goods and all they can afford are the knock-offs.

    Dr. K (3569f8)

  12. #9: Yes, Goodyear is still US owned. They serve mainly the high end performance and racing markets.

    Dr. K (3569f8)

  13. The unions will set the economic policies of this administration and we know how well they have done with GM, Ford and Chrysler. US Steel is doing well. One reason why the public employee unions are such a big part of the union movement is that the unions killed off the unionized industries. Now they are working on local governments.

    Mike K (addb13)

  14. And as often is the case, the poorest will be hit the hardest by Obama’s gift to unions:

    Consumers who buy low-price Chinese tires — the bulk of the tires China exports to the U.S. — will be hit hardest by the new tariff, as shortages in this market segment cause retailers to scramble to find alternative sources in other countries.

    Brother Bradley J. Fikes, C.O.R. (0ea407)

  15. Anyone? The Halley-what? Anyone? The Halley-Smoot tariff . . .

    John Hitchcock (3fd153)

  16. Is this creep in the White House actually trying to get the Chinese to stop buying our debt ? Because that is exactly what I would do if I were the Chinese in this situation. A failed treasury auction would create huge economic problems almost immediately for us (beyond the destruction Democrats have left us after they gained control of Congress in 2007 and the recession they created).

    DaveinPhoenix (dff67b)

  17. Ah, c’mon, John. Smoot=Hawley? Whuzzat? Seriously, I don’t think that is taught very much. Mostly, the kids get taught about more “relevant” political issues. Strangely, they seem to focus on partisan fashions.

    Eric Blair (0b61b2)

  18. This isn’t a surprise. This is what Democrats almost always do (with the very rare, conspicuous exception of Clinton’s continuing to push NAFTA): Passing legislation and rules to favor their favorites, even at the cost of national security and the pillaging of the overall world economy.

    Beldar (e00bf0)

  19. Awww, I don’t even get credit for a reference to a massively-successful “let’s make it stupid” comedic movie. 🙁

    John Hitchcock (3fd153)

  20. they (ie.Goodyear, etc.) were actively lobbying the WH not to impose this tariff.
    This was done strictly to satisfy the USW. Comment by AD – RtR/OS!

    China has horrible import duties for things like spare parts (like 22%) which are used in industrial settings. Comment by AD – RtR/OS!

    Between the amoral, flaky ultra-“lefty” in the White House and the amoral, flaky ultra-“leftys” in the PRC, I have a very uneasy feeling about all of this.

    Policies on new tariffs along with all the rest (ie, an ongoing series of bad decisions from the current White House, not even including things like “We hate Honduras!!!”) very well may unfold into a pathetic lesson of the law of unintended consequences combined with the road to hell being paved with good intentions. Sort of the 1930s — and I now realize that FDR was much more of a stereotypical “lefty” bonehead on economic matters than even I was aware of until very recently — readapted to the 2000s.

    Wall Street Journal:

    Consumers who buy low-price Chinese tires — the bulk of the tires China exports to the U.S. — will be hit hardest by the new tariff, as shortages in this market segment cause retailers to scramble to find alternative sources in other countries.

    The tariffs, which apply to all Chinese tires, will cut off much of the flow of the more than 46 million Chinese tires that came to the U.S. last year, nearly 17% of all tires sold in the country.

    The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn’t profitable to produce inexpensive tires in domestic plants.

    “I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.

    Low-end tires cost roughly $50 to $60 apiece, while premium tires can sell for $200 to $250.

    It will take many months for producers in places like Indonesia and Brazil to pick up the slack. And any tire manufacturer that wants to get involved in the low-end business would have to revamp factory lines to produce the sizes and types of tires favored by U.S. consumers, a costly and complicated process.

    Rod Lache, an industry analyst at Deutsche Bank Securities, said the tariff is hitting at a difficult moment, which could compound turbulence in the marketplace. Inventories are low, he said, as companies have reduced stocks in the face of the recession.

    Meanwhile, a massive reduction in capacity is taking place. In 2005, North America had the capacity to produce 370 million tires. Today, that number has been cut by more than 40 million — and a further 35 million are in the process of being eliminated.

    Mark (411533)

  21. Thanks Eric, for finally contributing the right spelling on that Smoot thing. I was starting to think we were talking about a comet or something.

    Now, DRJ, can you correct YOUR spelling? Shouldn’t it be United Stealworkers?

    Gesundheit (254807)

  22. I think this is all about paying off special interests — the unions. But candidate Obama also talked up high-speed rail and in light of his concern for green jobs and the environment, he probably thinks America has enough private cars. If so, it’s a win-win to raise the price of vehicle components and thereby limit how many cars Americans can afford.

    DRJ (b0cdd4)

  23. Very clever, Gesundheit, but I think I’ll pass. I make enough people mad as it is.

    DRJ (b0cdd4)

  24. DRJ – You need some high speed rail lines down there in Texas for public transportation, don’t you? Quicker commutes courtesy of the government.

    daleyrocks (718861)

  25. Very clever, Gesundheit, but I think I’ll pass. I make enough people mad as it is.

    Allow me to attest to that fact. She has made me angry on many occasions. Unadulterated information she provides makes me angry several times a week. All the bovine byproduct the left try to dishonorably spread, she brings it to my nose and it stinks to high heaven.

    John Hitchcock (3fd153)

  26. Daley, I remember driving through Houston in a big truck during rush hour. Much less congestion than Chicago.

    Houston has this “diamond” lane for vehicles with more than one occupant, as opposed to Chicago’s “diamond” lane for vehicles with more than three occupants. And Texans have figured out a man and a blow-up doll can occupy the “diamond” lane. 😉

    John Hitchcock (3fd153)

  27. John – What happens between a Texan and his or her blow up doll stays between the Texan and his or her doll.

    Shame on you.

    daleyrocks (718861)

  28. daleyrocks,

    Actually, I wish we had more rail in parts of Texas but it hasn’t materialized for some good and some bad reasons. I want local communities to have more rather than less control over transportation, and the TxDOT mobility plan agrees:

    First, this plan represents a philosophical change in relationship between TxDOT and the MPOs [metropolitan areas]. More authority, control and decision making authority will be at the local level.

    Second, we will measure congestion, compute what projects (highway, rail, mass transit, etc…) and policies (access control, land use planning, etc…) are needed to reduce and control congestion.

    Third, using new money from the Mobility Fund, baseline allocations from TxDOT and local option user-pay funds will allow each metropolitan area to develop financial plans to build projects as they see fit on the timeframe that is appropriate to each area.

    DRJ (b0cdd4)

  29. Texas has an unfair advantage. It has space. Houston, at least when I was an OTR trucker 15 years ago, built their metro highway system out into the middle of nowhere, allowing the city to build around it. And all those 6+lane-each-way highways into the middle of nowhere and the purely Texan feeder system take up a lot of space. But they prevent gridlock like seen in the windy or in dirty-side.

    The windy, rush hour starts at 4am and ends at midnight. Dirty-side, 20 miles means 4 hours (and usually $60 in tolls for a big truck) in daylight. I spent the company’s $12-ish to use the skyway in the windy whenever possible, cutting 2 hours of gridlock time.

    John Hitchcock (3fd153)

  30. DRJ – Local control is good, but I’m not sure that’s on Obama’s agenda.

    daleyrocks (718861)

  31. To tell you the truth, I don’t want to buy Chinese tires. There’s no telling when those things will come apart.

    I would rather buy U.S. tires made by good, old reliable U.S. labor.

    But, they’re leadership won’t allow the corporations they work for to make this possible.

    And new tariffs on the Chinese tires simply mean that the U.S. has given up what little bargaining power they had with the Chi-Coms, while they hold the mortgage on our Treasury. Well, that’s a bit of an overstatement, but I believe you know where I’m going.

    Add that to pulling out of the six-party negotiations with the North Koreans, and our Friday night decision to negotiate with Iran, with its nuclear program off the table, what do you have?

    Negotiations from a very weak position.

    What happened to “walk softly, but carry a big stick?” Our big stick now is about the size of Karen Carpenter’s femur.

    Ag80 (64bef0)

  32. I am beginning to think that the judgment of this administration might not be so very good.

    Kevin Murphy (3c3db0)

  33. The purely Texan feeder system is the most bestest thing ever. Whoever thought of that should get an award or something. A really shiny one.

    happyfeet (6b707a)

  34. As a Texan, I believe I may be offended. What did the doll look like?

    Ag80 (64bef0)

  35. “I would rather buy U.S. tires made by good, old reliable U.S. labor.

    But, they’re leadership won’t allow the corporations they work for to make this possible.”

    Ag80 – I’d like to buy U.S. too, but if they can’t be made and sold at competitive prices here, who do you blame?

    daleyrocks (718861)

  36. Daley:

    No disrespect but I said:

    But, they’re leadership won’t allow the corporations they work for to make this possible.

    And by leadership, I meant the unions. Just to clarify.

    Ag80 (64bef0)

  37. Ag80, if I recall correctly, the dolls I saw were mostly scandanavian in origin. 😉

    John Hitchcock (3fd153)

  38. Ag80 – Thanks for the clarification.

    daleyrocks (718861)

  39. Ag80 – I think the doll had big hair.

    daleyrocks (718861)

  40. Correction, Daley. Yellow hair, big … eyes.

    John Hitchcock (3fd153)

  41. There’s a lot that can be seen from the cab of a big truck when looking into a car beside it.

    John Hitchcock (3fd153)

  42. The doll could be wearing a business suit.

    DRJ (b0cdd4)

  43. DRJ, I just tipped my king over on the board.

    John Hitchcock (3fd153)

  44. Darn it, my doll has short salt and pepper hair and two great children.

    I can’t catch a break.

    Ag80 (64bef0)

  45. “Dave Surls need to think about:”

    Thanks. I’ve thought about it for decades, and I’m in favor of strong protective tariffs.

    Not only to protect American workers and corporations (not counting multi-nationals), but also to drop an economic hammer on foreign nations that employ what amounts to slave labor in order to reduce production costs.

    Examples…

    http://ihscslnews.org/view_article.php?id=57

    http://www.asianews.it/index.php?l=en&art=1631

    http://www.nytimes.com/2007/06/15/world/asia/15iht-china.4.6160781.html

    As a union man (Teamsters, Local 78), I have a deep and abiding sympathy for people who are getting royally screwed by their employers, and no sympathy whatsoever for consumers who are getting cut rate products made by slave labor.

    Also, I’m not in favor of doing anything that helps the commies in the PRC, just on general principles.

    Dave Surls (b1282f)

  46. As a former union man and 3rd shift union steward (teamsters, international sheet-metal workers), any idiot who thinks the union actually does the nation any good deserves the president we got. And a repeat of Smoot-Hawley is an idiot’s wet dream: destruction of the US and paradise for China’s government.

    John Hitchcock (3fd153)

  47. “And a repeat of Smoot-Hawley is an idiot’s wet dream: destruction of the US”

    If you ask me, strong protective tariffs were one of the key elements in an economic system that turned the United States into (by far) the strongest economic power on earth during the late 19th and early 20th century.

    I’m not too impressed by what our economy has done since the liberals basically dismantled that system and replaced it with their New Dealer, one worlder, free trade abroad, socialism at home malarkey.

    The system that included protective tariffs worked big time. What we’ve replaced it with…not so much.

    Dave Surls (b1282f)

  48. To be honest, PRC should never have gotten MFN status under any conditions. And I wouldn’t shed a tear if PRC got it yanked. That would definitely send Wally World in the tank, which wouldn’t hurt my feelings any (look at my downtown now that we have a Wally World). But, given PRC’s ownership of our debt and zero’s splitting of a pair of treys at the blackjack table, actually cutting PRC off would be very difficult.

    And zero isn’t cutting PRC off. He’s only playing to union bosses. A better way to spank PRC without causing as much kerfuffle would be to designate Portland as the only port capable of receiving any imports from PRC, and not adding any tariffs.

    John Hitchcock (3fd153)

  49. The Chinese take trade wars very seriously, and they won’t mince words while the Americans place a 35% tariff on any of their products.

    When South Korea tried to halt Chinese garlic import due to some health concerns, the Chinese immediately threatened to ban Korean cell phone technology in retaliation. Considering how their economy depends on cell phones and other electronics (LG, Samsung), they had to cave in.

    To be fair to Obama, Asians can be hardcore protectionists themselves. Lefties in their culture will rail against Hollywood films, US beef, and other western imports. They can be bitchy little nationalists sometimes. If not for the global recession, I’d be delighted at the American president of their choice biting them in their arse.

    lee (86706b)

  50. “Since the 1950s, American manufacturing has dramatically declined, as a relative share of the American economy. In 1958, 28% of employed Americans worked in manufacturing; in 2008, only 8% did so. In 1958, there were 14.6 million factory workers; in 2008, only 12.7 million Americans worked in factories. Not since the industrial revolution in the mid-19th century has manufacturing occupied such a small relative share of the American economy.”

    http://shroudedindoubt.typepad.com/bodyparts/2009/02/the-decline-of-american-manufacturing.html

    As long as we had strong protective tariffs our manufacturing capacity grew and grew and grew. We got rid of them…and there’s the result.

    Of course, there are other factors involved in the decline of American manufacturing capacity, but the adoption of free trade policies (mostly by the halfwit liberals in the Wilson and Roosevelt administration) is, IMO, of course, a major cause of the decline in American manufacturing.

    Dave Surls (b1282f)

  51. infotech might be a reason, too, yes?

    John Hitchcock (3fd153)

  52. I have never been pro-NAFTA because I believes it sells our birthright (national independence) for a bowl of leek soup. But I won’t brook isolationism either. And I won’t buy any arguments talking about how “free trade” has destroyed the International Brotherhood of Wheelwrights.

    John Hitchcock (3fd153)

  53. Some here seem to be forgetting the basics: free markets allow for competition; competition keeps prices low; low prices allow consumers to buy more of everyone’s products.

    A person that buys an inexpensive Japanese-made DVD player, or produce from Central America, at Wal Mart will have enough money left over to consider buying a Camaro or Mustang; or, on a smaller scale, to support his local restaurants and sports teams.

    The person that, due to a tariff, has to pay more for each item he purchases will have less money remaining to spend on other products — American made, or otherwise.

    Icy Texan (259a85)

  54. I can agree in part with you, IT, but Wally World kills competition and destroys businesses wherever it lands.

    John Hitchcock (3fd153)

  55. Wally World wins the competition. Regarding their competitors, remind me, what product is it that can only be found there? They keep prices low through volume sales, not from exclusivity.

    Icy Texan (259a85)

  56. If you ask me, strong protective tariffs were one of the key elements in an economic system that turned the United States into (by far) the strongest economic power on earth during the late 19th and early 20th century.

    You’re correct. But it only worked because the richest country in the world, Britain, kept the peace and supported free trade. We were a protected market because we had more demand than supply. That ended about 1900. That is now true of China and India although China has chosen to rely on exports while India has chosen to spend more on internal development. We tried reimposition of tariffs in 1930 when we were no longer able to rely on our internal market. It didn’t work out well. The only good thing to come out of that experiment was the fact that we had a lot of unused industrial capacity when WWII came along.

    Mike K (addb13)

  57. “You’re correct.”

    I don’t know for sure that I’m correct, but I strongly suspect that I am.

    Re: Britain and free trade

    http://www.econlib.org/library/Columns/y2003/Nyefreetrade.html

    “We tried reimposition of tariffs in 1930 when we were no longer able to rely on our internal market. It didn’t work out well.”

    Well, it didn’t do anything to reverse the depression, but that isn’t what protective tariffs are supposed to do.

    Dave Surls (a76971)

  58. Comment by Dave Surls — 9/14/2009 @ 2:25 pm

    Yes, but the Congress in its’ collective wisdom (hack, hack), and President Hoover, in trying to appease the industrial North-East segment of America, imposed a protective tariff (Smoot-Hawley) to “protect” and “preserve” American jobs.
    What they did do is initiate a world-wide tariff war that shut-down all trade, including the export of commodities such as wheat and corn that moved the economic misery of 1930 from the Great Lakes/New England industrial heartland, to the South and Plains in 1931 where agriculture went into the toilet too with the loss of their export markets.
    An open, free trade will certainly displace some industries that cannot compete due top many factors, not all of them wage rates (our steel industry in the 50’s & 60’s was hard-pressed to compete with new competitors in Japan because Japan sited its’ steel plants along harbor edges where the incoming raw materials could be off-loaded directly into the complex, and the outgoing steel could be loaded directly onto ocean transport. Plus, of course, everywhere else in the world, heavy industry was operating in brand-new facilities (a lot courtesy of the Marshall Plan) while we were making do with plants that were up to a hundred years old.
    But, the point is, free-trade allows each country to trade in a commodity or service or product that it is most efficient in providing, which allows the consumer – wherever he/she is – to purchase the most value for their dollar/pound/franc/drakma/ruble/yen/whatever.
    Protective tariffs just prolong the inevitable demise of industies that have lost their reason to be:
    Where are those buggy-whip makers, anyway?

    AD - RtR/OS! (5c940e)

  59. We sure don’t need trade wars right now.

    gp (de7e13)


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