Saturday, September 12, 2009

Obama punishes Chinese success at the expense of U.S. consumers

Obama has decided to impose a 35% tariff on Chinese-made tires, invoking a 2000 law that allows the imposition of tariffs on any surge in Chinese imports that damages a U.S. industry. We're not talking tariffs to remedy an allegation of dumping, we're talking about tariffs on products that prove so successful that they "harm" domestic producers. Now, not only will Chinese producers find it harder to sell their products here, but U.S. consumers will find that tires are unnecessarily expensive. The real problem with this, however, is that it could be the first in a series of tariffs that could escalate into a trade war, and that would be very damaging indeed. One need only recall the Smoot-Hawley tariffs that were one of the principal causes of the Depression.

The real losers in any tariff war are the countries that impose tariffs, since they deprive themselves of cheap goods. It's akin to cutting off your nose to spite your face. Bush was stupid to impose tariffs on steel in his first term, and now we see the same stupidity reemerging with Obama. We can only hope this is an isolated incident.

UPDATE: The NY Times reports that Obama's decision was a response to a complaint by the United Steelworkers union. Tire retailers opposed the decision. HT: Mark Perry

14 comments:

alstry said...

This is going to be very dangerous to the American people....I can't believe you and I are aligned on so many issue these days.

My bet is it is response to China warning that they might be moving away from accepting dollars for trade as deficits continue to skyrocket out of control.

We are even getting into trade issues with Cananda if you can believe it.....protectionism seems like a very dangerous trend these days as it spreads around the world.

Let's hope cooler heads prevail as we increase our troop build up in Asia.

fboness said...

Smoot Hawley anyone? The Great Depression was a tragedy; This depression will be a farce.

MW said...
This comment has been removed by the author.
krispyhoochie said...

Hi Scott,

I was wondering what your opinion is on the price of natural gas.
We are flirting with 10 year lows and I am reading very opposing views as to where ther price of natural gas is headed in the near future.
I read your blog daily and value your opinion and have yet to see you talk about natural gas. I would love to know what you think.

Thanks

Scott Grannis said...

I'm really not an expert at all in natural gas, so I have no idea whether we are at a turning point here. It sure has fallen a lot, but oil prices look like they have lots of support around these levels. So maybe natural gas falls a bit more, but looking out over the long haul I have to think prices will be higher than they are today.

Brian said...

"A full-blown trade row erupted on Sunday night between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties".

Here it goes folks.

Never miss the opportunity of a good crisis - even if you have to start one.

Cabodog said...

Talk about biting the hand that feeds ya...

The mismanagement of this country by a manager who has never so much as even managed a Dairy Queen boggles my mind.

MW said...

"looking out over the long haul I have to think prices will be higher than they are today."

Meaning higher than the forwards or higher than the front month?! The fwd curve is already pretty steep (obviously a function of storage). V0 is already c. 1.77 times the price of V9.

Scott Grannis said...

MW: Now that I've checked my Bloomberg, I realize the forward pricing is amazing, and storage can't account for the all steepness of the forward curve. So I would have to say that that value of my input to this investment decision is not worth very much.

Dick G said...

This is a logical move by Obama to buy more votes from the labor unions. It is sickening.

Scott Grannis said...

You are absolutely correct, but at the same time he buys union votes he is losing more and more votes from the non-union folks. It's a losing proposition for him, and that's part of the reason his popularity is headed straight down.

fboness said...

This is another reason for Americans' opinion of unions to continue to decline.

These "Chinese tires" are being made in plants set up by major foreign tire comapanies using the best practices and technology. They are as good as tires made anyehere in the world.

MW said...

"You are absolutely correct, but at the same time he buys union votes he is losing more and more votes from the non-union folks. It's a losing proposition for him, and that's part of the reason his popularity is headed straight down."

I wish there were coverage of this in the mainstream media. The unions paid 5bn for 55% of the new GM. The taxpayer paid 16bn for 10%. At the same time, Obama was on TV stating that he was looking out for taxpayer interests.

Public Library said...

MW,

It is hard to feel the pain you are talking about when the government shoveled $12B alone to Goldman through AIG.

Your qualms are peanuts in the global finance game. I do not like unions but kudos from them for securing a raw deal on taxpayers. that is the American way.

The banks are artists at it and our government is nothing but a corporatist piggy bank.

Why educated people think otherwise still seems to amaze me. Forest and trees comes to mind here.