Last week, the POTUS announced that it would impose a tariff of 35 percent on $1.8 billion of automobile tires imports from China, acting on a petition from one of his major constituencies, Big Labor (the United Steelworkers union).
As you may expect china did not react pleasantly. Zhou Wenzhong, China’s ambassador to the U.S., warned that President Barack Obama’s decision to impose tariffs on Chinese tire imports may set a “dangerous precedent” as other industries ask for protection. Zhou said U.S. textile and steel producers may file similar so-called safeguard complaints against Chinese exporters, testing Obama’s commitment to avoid a trade war.
“It will set a very dangerous precedent,” the ambassador told reporters today in Washington. “We hope the relevant agencies will draw a lesson from the many, many comments here in the U.S. and around the world” criticizing the tire tariffs.
Beside being a major trading partner, China is also the biggest holder of United States debt, and with the continued policies of the Obama administration, we will need them to buy a lot more of that debt. Obama might want to consider keeping them happy.
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The Presidential tariff decision will hurt Americans more than anyone, because on top of any negative reaction from China, we will have to pay higher costs for tires. Obama’s tire tarrif is nothing more than an Tax on Americans with the funds used to bail out the unions:
Last week, President Obama announced that his administration would slap a 35% tariff on Chinese tire imports. The move cheered a U.S. tire industry that has faced stiff competition from overseas producers.
But while Obama’s decision will no doubt please a small sector of the U.S. economy, the underlying truth about protectionist tariffs is that they aid domestic producers who’ve failed to meet the needs of domestic consumers. We produce so we can consume, which means that tariffs usurp our basic liberties when it comes to finding the best deal.
People correctly talk about taxes being a price on work. While that’s undeniably true, the same can be said of tariffs. Obama’s flawed attempt to shield a small number of workers from economic reality means that the vast majority of Americans will suffer these workers’ lobbying skills in the form of higher prices. The work of the many will be taxed in order to benefit the few.
Sadly, there are unseen negatives to the tire tax that promise to burden the U.S. and world economies. For one, all trade balances–to the extent that we block foreign imports from reaching U.S. consumers, we also hamstring the ability of U.S. producers to sell to foreigners. If we’re not buying from them, they logically can’t buy from us.
During his presidential campaign, Obama promised to “crack down” on imports that supposedly undermined American workers, but in doing so he misses the greater point that imports are merely the precursor to exports. The Chinese are not exporting goods to weaken us, they’re producing so that they too can enjoy the finer things in life. Their production is identical to their demand, and if we’re allowed to buy from them without restriction, they will, in time, be in the market for what we make.
It’s also true that tariffs rarely go unanswered. When President Hoover signed the Smoot-Hawley tariff bill in 1930, his signing led to barriers placed on U.S. goods by foreign countries around the world. If we shrink markets for our foreign partners, they’ll shrink theirs for us (already Chinese authorities have announced curbs on U.S. exports of chicken and auto products).
In the Smoot-Hawley case, the 1929 stock market crash was directly related to knowledge that Hoover would sign the bill the next year. Markets never price the present; instead they price the future, and with it apparent that governments around the world would expand on our mistake, investors didn’t wait to sell down a world economy that would quickly become less efficient.
That in mind, 19th-century trade activist Nassau Senior once observed, “The productiveness of labor depends on its division.” Looked at in terms of today, the “seen” will be U.S. tire manufacturers with fortunes increasing on the backs of other hapless Americans.
But the unseen will be the more vibrant businesses that never form, thanks to the inefficient misuse of human, physical and financial capital for businesses that, by virtue of their needing protection, can’t satisfy customer needs on their own. Entrepreneurs can’t innovate without capital, and tariffs will necessarily drive down the savings that entrepreneurs draw on in order to grow.
Some in the industry estimate the newly announced tariffs will eventually drive up tire prices 20% to 30%. The unfortunate “seen” here is that Americans will see their paychecks diminished in order to support a sector that can’t support itself.
The even more troubling “unseen” is what we’ll lose for Americans suffering higher tire prices. Put simply, no act of saving ever detracts from demand or investment. And with Americans forced to pay higher prices for tires, the money previously saved will detract from demand in other parts of the economy.
Most crippling for the economy will be the impact of the tire tariffs on the dollar. When taxes on imports are imposed, that’s a signal to investors that the administration imposing them desires a weaker currency. Just as President Bush’s announcement of tariffs on steel, lumber and shrimp coincided with a falling dollar, Obama’s decision with regard to tires tells investors that his regime favors a weaker greenback.
What this means for the average American is that his or her work will be taxed visibly through tariffs, not to mention that it will similarly be confiscated through the hidden tax that is inflation. The weaker dollar will also reveal itself in wages that don’t keep up with prices, given that periods of falling currency values regularly coincide with capital “flight to the real,” instead of a flight to the innovative wage economy.
At its core, trade is not about countries, but about the individual exchange of surplus for the surpluses of others. We trade precisely because what we need in life far exceeds what we as individuals produce. When we receive imports, our individual productivity is being complemented by foreign producers.
By imposing tariffs on Chinese tires, Obama is restricting our freedom and the reason we work in order to favor certain special interests. This is bad politics–and worse, horrible economics.