Obama's G-20 Trade War
China's president decried protectionism at the world leaders' summit—taking a shot at the U.S. Mark McKinnon on the Obama sop to big labor that’s launched a costly battle with Beijing.
It’s pretty embarrassing when a Chinese president lectures an American president about free trade on his home turf. In a direct shot at his U.S. counterpart, President Hu Jintao Friday at the G-20 Summit in Pittsburgh called on his fellow leaders to "resolutely oppose and reject protectionism in all forms.” Because President Obama hasn’t.
If Barack Obama can’t stand up to labor unions, it’s not a good sign of things to come. Presidents have to have the independence and backbone to make tough decisions. And Obama just got rolled.
As history has repeatedly proven, one trade tariff begets another, then another—until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.
I am a rabid centrist who falls just enough to the right of the line to call myself a progressive Republican. I prefer for government to err toward less regulation, lower taxation, and free markets. And I’m a radical free trader. Each party has its fringe elements and special interests that exert disproportionate influence. But the interest that bothers and worries me most consistently is organized labor.
One of things that worried me most about President Obama during the campaign was his protectionist message, leanings, and body language. Since his election, Obama has dealt labor unions a number of concessions, but, smartly in my opinion, has shown no real enthusiasm for their No. 1 issue, the odious and Orwellian sounding Employee Free Choice Act—proposed legislation that is nothing but a labor bailout bill that would have a devastating impact on businesses and the economy.
Unfortunately, Obama is not showing the same sort of judgment on the issue of trade protection. He is folding inexplicably and dangerously in an obvious sop to labor. At the urging of the United Steel Workers, who are upset at the loss of 5,000 jobs from free and fair competition, he has imposed a three-year tariff on Chinese-made tire imports. The first year the tariff will be 35 percent, the second year it will be 30 percent and the third year it will be 25 percent.
The idea is that tariffs will lead American manufacturers to invest in their American plants. But tire manufacturers have already moved production of low-cost tires out of the country. They lose money at the low end of the market and have conceded it to the Chinese. Domestic tire makers did not even support the tariff application. So now, consumers with wallets already pinched will forego buying new tires because they can’t buy cheap Chinese products, which means they will drive on unsafe tires, leading to accidents, injuries, and deaths.
And those who do buy tires will have to pay more. Rutgers University economist Thomas J. Prusa testified before the International Trade Commission that the tariffs could cost 25,000 jobs and cost consumers $600 million-to-$700 million more a year for higher-priced tires. Opponents from within the American tire industry argue that Chinese tires do not even directly compete with the mostly premium tires produced in the U.S.
In addition to the U.S. tire-production industry, the American Coalition for Free Trade in Tires (Dunlap & Kyle Co., Del-Nat Tire Corp, American Omni Trading Co., Hercules Tire & Rubber Co., Orteck Global Supply & Distribution Co., GITI Tire (USA) Ltd. and Foreign Tire Sales Inc.), a pro-business organization also criticized Obama’s decision.
On Sept. 3, Tyson, Austin, Hormel, and the National Pork Producers Council were among the food and agricultural organizations to write a letter to the administration requesting that it refrain from tariffs on Chinese tire imports. They are also concerned that China’s response to these measures could end in negative action against U.S. food and agricultural products and could also affect U.S. farmers, food companies, and ranchers.
Obama’s plans have received criticism abroad as well. The potential reality: This decision has international implications as the U.S. has reneged on the commitment made last April at the G-20 summit to avoid protectionism in response to the international economic crisis. Obama’s administration has created a tit-for-tat situation with China that will likely leak over and affect other industries.
- China announced on Sept. 14 that it would investigate the prices of U.S. poultry imports and American car products companies.
- China responded Sept. 14 by announcing they would file a WTO complaint against the U.S., and China is likely to win its case if it is proven that they did not “surge” the U.S. tire market.
On Sept. 22, the Financial Times reported that China had begun supplying roughly around one-third of Iran’s petrol imports. Last month, Iran imported between 433,000-466,000 barrels of gasoline. This could have serious impact on Iranian sanction talks slated to begin on Oct. 1. Until now, China had not seemed to pose a threat to U.S. sanction plans against Iran.
Obama’s actions could very well open doors for other industries to request similar relief on imports that they find disruptive to the market. Washington correspondent James Morrissey reported that “while the case will directly benefit manufacturers of tire cord, textile industry officials are heartened by what they see as a possibility of using the same procedure to get relief from other imports of textiles that they believe are disrupting the market. U.S. textile manufacturers welcomed the decision, importers of textiles and apparel blasted it, and the Chinese government threatened retaliation.”
As history has repeatedly proven, one trade tariff begets another, then another—until you’ve got a full-blown trade war. And, in the end, no one ever wins and consumers always get screwed.
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, corporations and causes, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono.