 Chinese rubber will eventually continue to meet the road
Sometimes a small
pebble dislodged from a mountainside turns out to be the trigger of an
avalanche that leaves the environment vastly changed. Most of the time
it doesn't. Instead the pebble lands, bounces once or twice, kicks up a
bit of dust – and then settles, leaving the landscape looking about the
same. Experts or specialists who spot it and use the pebble's fall to
predict disaster then look a bit silly.
This is likely the case with the
Obama administration's decision to impose a three-year tariff on
Chinese automobile tires. Experts and trade-watchers see the tariffs as
a major event. For free traders, it risks being the first step towards
a 1930s-style closure of world markets. Populists alarmed about
competitive pressure, on the other hand, see it as a bold stand for
American workers and against foreigners. Both are probably wrong. The
tariffs on Chinese tires probably won't cause a trans-Pacific trade
war; nor will it make much difference for the American tire business
either.
First some basic facts. About a third
of America's imported auto tires come from China. This spring the
United Steelworkers union filed a case to impose three-year tariffs on
the products. As the case points out, the tires have been rolling in
fast – up from about 4 million tires in 2000, to 17 million in 2005,
and 40 million last year. The total came to $1.2 billion worth of
imports, or about $300 per set of tires, making up a small but
noticeable slice of the roughly $340 billion in Chinese goods that
landed at American docks last year. As China's share of the tire market
has grown, that of some neighboring countries – in particular Japan,
Korea and Canada – has fallen back. American tire-making employment has
dropped as well.
Enter the Steelworkers' call for
temporary tariffs. The US International Trade Commission, the
independent agency charged with evaluating petitions for temporary
tariffs, recommended a three-year tariff starting at 55 percent. The
Obama administration decided on a policy somewhat more modest: a tariff
at 35 percent, then drifting down to 30 and 25 percent before returning
to the normal four percent tariff policy in 2012.
Such things are by no means unusual.
Each year the World Trade Organization counts 100 to 200 of them around
the world, usually imposed through the “anti-dumping” and
“countervailing duty” laws many countries have passed to defend
industries against predatory export practices, such as below-cost sales
and government subsidies.
India is the most frequent user of
these laws, imposing about 30 anti-dumping penalties a year since 2000.
The United States is a bit less enthusiastic, imposing about 15
anti-dumping cases a year. China and the European Union also record
about 15 cases a year. According to the U.S. Commerce Department, China
now maintains penalty tariffs like these on 17 types of American goods,
including tariffs ranging up to 46 percent on optical fiber, 61 percent
on Spandex, and 91 percent on chloroform. And a week before the
administration's tariff decision, in fact, the Chinese Commerce
Ministry renewed anti-dumping tariffs on a grade of Russian, Japanese
and Korean rubber known as “styrene butadiene” used precisely to make
automobile tires.
So occasional tariff decisions are
not at all unusual. Typically they affect only a small slice of trade,
and while annoying shoppers and exporters, pose no serious threat to
broader flows of goods and services around the world.
The tire case does differ from this routine tariff-drizzle in some important ways.
One, it is the first American use of
a special clause of the 1999 “accession” agreement which brought China
into the WTO which makes import limits unusually easy. This clause,
known as “Section 421” for its place in the big green book of American
trade laws, allows American companies and unions to appeal for tariffs
on fast-growing Chinese imports – not on grounds of unfair trading
practices, but simply to provide help in a period of rising imports and
competition. The 421 clause itself is temporary, lasting only until
2013, and the Bush administration did not use it at all, turning down
all four 421appeals for Chinese goods.
Second, the tire case has been filed
by a trade union rather than a business association. Manufacturers like
Cooper Tire, which make some tires in the U.S. and others in China, in
fact mostly oppose the tariffs, presumably as they balance worries
about competition here against long-term interests in China. The
union's decision-makers, concerned simply with their members in the
United States and Canada, have no such ambivalent feelings. The very
strong reaction of the Commerce Ministry no doubt reflects the fact
that since 421 cases are relatively easy to win, Chinese exporters fear
more trade-union based cases over the next three years.
Such things are certainly possible.
But in fact temporary import limits like these, in the United States
and elsewhere, are both more common and less important than most
trade-watchers are willing to admit. They tend to fade away fairly
quickly, and often leave little behind.
The best-remembered of these was the
Bush administration's steel tariff policy of 2002-2003, which applied
not to one country alone but to almost every world producer of steel.
As the tariffs went into effect, steel imports fell modestly; then the
tariffs came off and steel imports are now back to their typical
levels. Employment and production trends in the United States remain
unchanged.
Clos
er in time and nature to the tire
case was the Bush administration's decision in 2006 to impose a limit
on imports of Chinese clothes, linens and other textile goods. This,
like the tire-tariff, was the result of a unique feature of China's WTO
accession agreement. It had no visible effect on imports or employment
at all. Importers of clothes simply shifted purchasing a few miles down
the Asian coast, from China to Vietnam. They may well do the same after
the tire decision, though perhaps tire factories will prove slightly
less easy to move than garment shops.
Observers fundamentally should
remember a few things. One, the tire tariff is within America's WTO
rights. Two, if the Chinese government has good reason to believe it
isn't, it has a right to sue at the WTO – and could win, as it along
with Europe, Brazil and others did on steel a few year ago.
Every once in a while, of course,
small events are precursors to much bigger ones. Some pebbles do change
the scenery when they fall. Perhaps the fragile state of the world
economy makes the tire tariff a bit riskier than temporary tariffs
usually are; or perhaps the wariness of America's shoppers will make it
more effective in stabilizing employment than the Bush administration's
steel and textile policies proved to be. The most likely result,
though, is something less than the excited editorials and media
coverage suggest. The tire tariff will probably last its three years,
have some modest effects on trade flows and production, and then, when
the pebble lands, all will look much the same.
Edward Gresser is Director of the
Trade & Global Markets Project with the Democratic Leadership
Council. This is reprinted with permission from YaleGlobal, the
magazine of the Yale Center for the Study of Globalization
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Economics/Business 
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