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Home » Economics, Government, Headline

Steelmakers and Tire Tariffs

Submitted by 4 Comments | 5,758 views

Flat_tire_edited_sizeI wrote in my Article titled, “US Steelmakers Support Green House Gas Legislation” on United Steelworkers supporting GHG legislation and assumed they were doing so to get more favorable treatment from the White House.

In fact the United Steelworkers couldn’t get any trade complaints passed through the Bush administration so their hoping for some traction with Obama (particular since he pledged to increase trade enforcement). They are currently trying to get ‘trade enforcement’ considerations by Obama on imported Chinese tires.

Well Obama ended up signing a 35-percent tariff on imported tires (a tariff acts like an additional tax on tires from China, read more about tariffs via wiki). The action provides a 35-percent tariff the first year, beginning September 26; 30 percent the second year; and 25 the third. That’s on top of the four-percent tariff that the U.S. already imposes. Then the statute expires completely at the end of 2013. The reason for the increased tariff is that current trade laws have a anti-dumping law which in this case has been investigated by the US International Trade Commission which has determined that (see their report),

On the basis of information developed in the subject investigation, the United States International Trade Commission (Commission) determines, pursuant to section 421(b)(1) of the Trade Act of 1974,1 that certain passenger vehicle and light truck tires2 from the People’s Republic of China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products.

So basically the Chinese are able to import tires that are less expensive and that this causes market disruption. I wonder if saddle makers made similar complaints to their US representatives in the advent of the automobile, claiming that automobiles will subject their industry to market disruptions.

I thought a quick overview of why this hurts all of us would be beneficial. China can produce tires with less expenses than a US company. They can do this because of differences that exist within their economy, like lower wages and lower costs of production. This provides the US market with less expensive tires. When a tariff is enacted it increases the price of imported tires and limits the number of imported tires that come into the US market (this later point is because Chinese firms profit margin decreases because the demand for their tires decreases due other additional costs imposed by the tariff and they produce less tires for export).

In fact, I just purchased a set myself, and was happy to buy a reliable well made tire from China that costs less money. If these tires were more expensive due to a tariff or not available because the Chinese companies can no longer remain profitable, then I would have to purchase more expensive US made tires, or pay for more expensive tires from China. That would leave less money in my pocket, and every other consumer who picked out less expensive Chinese tires. This makes me less well-off, there is less money to spend on other things like donations to universities or going out to dinner in my neighborhood.

Well, one my ask, why would a President want to hurt all of the consumers of tires in the US. Its not that the President wants to hurt consumers, but rather the US Steelmakers and a few other special interest have convinced the President that they are worth helping. Too bad US consumers can’t get the attention of the White House like special interest do.

I agree with a WSJ blog that this shouldn’t be viewed as a beginning of a Trade War, as it may just be a warning shot, but it still is unnecessary and doesn’t allow me to freely contract with a company providing me a more favorable alternative to US made tires.

To quote the president in a speech given Aug. 2, 2008,

When special interests put their thumb on the scale, and distort the free market, the people who compete by the rules come in last.

Well I’m following the rules as is every other consumer who wants to purchase less expensive tires, and we are coming in after the special interest. Hopefully people will start to learn that politicians manipulate public sentiments to get elected (i.e., they tell us what we want to hear which does not follow what they end up doing).

Why Should One Get Support While the Other is Hurt

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4 Comments »

  • Steve Mintz says:

    Hey John,

    Hope your doing well.

    I have 2 issues on trade:

    First, keeping prices low and thus inflation low is extremely important, however, there also needs to be a balance between keeping jobs in the US vs outsourcing them. I’m not talking specifically about tire manufacturers, but in general.

    Second, Why is it ok for our intellectual property industries (software, music, movies, pharmecutical, etc)to be not protected by China (and other countries) by not enforcing copyright law?

    Steve

  • John says:

    Thanks for the comment Steve. I also hope you are well.

    I agree with your point, it is important to keep jobs in the US, and I’m also intereted to see what happens to inflation in the next 18-24 months.

    In my view the most important part of keeping jobs in the US is to remain competitive in a global economy. We still do very well with this in the more value-added industries (e.g., marketing, legal, R&D, banking, etc.). These services are also part of the price we pay for things like tires, and for a lot of things, these costs are being incurred in the U.S. So even though tires are being made in China, the company importing those tires, distributing them, installing them, setting up the legal structures to do all this, and marketing all of it to us are still U.S. based companies.

    I think it is wise for us to remain competitive by continuing to add value to products and services, not by protecting ourselves from competition from abroad.

    That is a good point about copyright law. Maybe its a bit harder to enforce, to make the case in front of the trade groups (e.g., WTO). I did see that the “Intellectual Property Owners Association” spent $420,000 on lobbying various gov’t offices. I would guess that the people being harmed by the lack of copyright law is not concentrated and so it is very costly to get everyone together and lobby behind a similar front.

  • Amos says:

    John I think one critical point you are missing is that those steel workers in the left picture are the same people as the one’s on the right picture. I think you try to simplify it too much.

    Let’s look at the costs that are not directly seen on paper. The Chinese can make cheaper tires because they have much looser labor laws, i.e. they can underpay there employees to work longer hours, and in a much less safe environment. Although it isn’t something you or I might think about all the time, but why should you have cheaper tires at the expense of some little Chinese guys well being (and at the same time the expense of an American job)?

    Should we get into the Chinese environmental policy? Where does the benefit of cheap tires outweigh the health of the planet and its occupants? The tires are made in a factory with less/no air quality regulations, packaged and ship half way around the world in a ship, then train, then truck, and still end up cheaper.

    I am not saying nothing should be made in foreign factories, or that I am not guilty of buying something from china because it was $5 cheaper. However, I have had a conscious switch in thinking about buying things grown and made closer to home. Whether that support is to get fresher food, reduce my environmental impact, or support a local/regional/national business…..

    Amos

  • Jason says:

    Pollution creates jobs to clean up pollution, so we would not want China to stop polutting. Because people in that industry would lose their jobs if all the pollution was gone and that would not be fair. And then the pollution clean up industy would be in the same boat as the steel makers industry. Trust me.

    Jason

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