Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

By Alan Tonelson

Foreign governments, outsourcing “American” multinationals, free trade ideologues, and incensed editorial boards – as well as trade policy critics – are describing as a watershed President Obama’s decision to impose tariffs on Chinese tire imports.  All of them have it wrong, but the critics’ euphoria over the President’s endorsement of a recent International Trade Commission judgment is much more important and disturbing.  

After all, the outsourcers remain largely in charge of U.S. trade policy.  They can easily afford some misplaced alarmism, and possibly benefit from whatever fear it stokes.  In fact, they and their surrogates have kept up a steady media drumbeat of “Let’s-avoid-protectionism” without any evidence of such ever since Mr. Obama won the election.

But having delusions just isn’t an option for critics, especially if those delusions trap them into settling for tokenism.  That’s exactly what the Obama tire decision does, and complacency among critics is the last thing needed by a U.S. economy that urgently requires a trade policy overhaul to end the recession decisively.  The idea is to support and boost our productive sectors,  not through government stimulus but through policy changes.

By Washington insiders’ supposedly sophisticated standards, the tire decision was indeed something different.  It marked the first Presidential approval of ITC-recommended tariffs in a so-called “421 case” – a U.S. trade law suit made possible by conditions China accepted when it won membership in the World Trade Organization in 2001.   In exchange for granting China broad protection against unilateral trade restrictions, the United States and other members gained the right to stem with “safeguard” tariffs surges of Chinese exports that helped to “materially” injure their producers.  The ITC recommended this course of action in four out of the six “421 cases” it reviewed during the Bush years, but the former president nixed them all.  

Yet, for all the high-fives, how much relief can domestic tire makers and workers really expect from the Obama decision?  The ITC recommended imposing tariffs on incoming Chinese tires for three years, starting with a 55 percent rate the first year, and continuing with 45 and 35 percent for the following two years respectively.  These tariffs would come on top of existing four percent tariffs on tires.  Yet once the three years are up, the Chinese will be free to resume flooding the U.S. market.  Worse, after 2013, the United States cannot impose these special safeguard tariffs on any Chinese imports.  

Moreover, even the first-year ITC-recommended tariff would have barely offset the effects of China’s currency manipulation, which depresses the prices of Chinese goods in the U.S. and other markets by up to 50 percent.  And American producers would still face all of China’s other market-rigging policies, like illegal subsidies and rebates on Value-Added Taxes for exports.

The Obama administration, however, declined even to endorse the ITC tariff levels, opting instead for 35, 30, and 25 percent annual levies, which will put domestic U.S. producers even further behind the eight ball.  

As a result, the tire tariffs’ economic and even political effects are bound to be minimal.  Tariff supporters declared victory.  One labor leader insisted, “It sends a strong message that the U.S. government will take the necessary action to ensure that American workers and producers can compete on fair terms in the global economy.”  In the words of another union head: “Obama showed he’s made of tougher stuff” than predecessors like Bush.

But one wonders how strong a signal is being given when the Obama decision is released late Friday night – “a time when significant news often gets less attention because of the hour and the upcoming weekend,” as the Associated Press explained.  Since the trade policy world was already watching like a hawk, the Friday night maneuver was a silly, amateurish gesture from an administration that apparently wanted it both ways – showing unions that it was standing up for American jobs, but sotto voce telling free traders not to get too upset.  

Supporters also maintain that the tariffs greatly strengthened the rule of law in world trade.  But few myths have damaged the U.S. economy more than the goal of a rules-based trading system.  For rule of law is a tradition that precious few U.S. trade partners share.  

China, for example, is a literally lawless state.  Politics and policy are driven solely by the arbitrary and self-serving use of power by the communist regime.  Pre-communist China’s self-declared divine emperors had little use for rule of law, either.  And if Chinese leaders reject the concept for their own country and people, why would they treat foreigners better?  

Although post-World War II Japan has adopted many of Western democracy’s trappings, its views of law are much closer to China’s than to America’s.  And then there’s the biggest rub of all:  Rule of law is a dicey concept even in Western Europe, where powerful and surprisingly unaccountable bureaucrats exercise enormous power, especially over economic and commercial affairs.

Put simply, a meaningful global consensus on rule of law is utterly lacking and won’t emerge soon enough to concern today’s policymakers.  Worse, until then, U.S. trade partners’ nimble and ingenious bureaucracies will keep erecting secretive, informal trade barriers much faster than they can be identified even by American businessmen, let alone eliminated by Washington.  

At least as unrealistic: the idea that the Obama tires decision will spur new investment in the domestic tire industry.  The ITC itself determined that three years would be enough for U.S. tire makers to regain competitiveness against the Chinese.  But no one who knows anything about creating wealth and building factories – especially in high-volume industries like tires – could possibly agree.  

Why would any investor pay the high front-end costs for new plant and equipment and workers if the expiration of tariffs returns the industry to square one in only three years?  Why would any capitalist trust the post-2013 U.S. trade law system to ensure equitable competition, given the continued proliferation of predatory foreign trade practices?   How could investors possibly break even in the three-year time-frame, let alone make profits?  The obvious answers:  They wouldn’t, because they couldn’t.

Finally, the notion that the tire decision signals a major turn in President Obama’s trade policy seems completely naive.  Easily dismissed as hysteria is the Wall Street Journal’s charge that “Like [Depression-era President] Hoover, Obama is abdicating U.S. trade leadership.”  But the outsourcers’ warnings and the trade critics hopes that the tire tariffs will spur numerous new  421 cases from affected industries seems unfounded, too.  

After all, as would quickly become clear, Obama is anything but likely to approve tariffs in more than a few instances.  For the tires decision shows every sign of being quintessentially political, not economic.  There’s certainly no evidence that it flows from a thoughtful assessment of manufacturing’s trade troubles and the real remedies required – for Obama has opposed, ignored or slighted these issues and proposals so far in office.

And does anyone seriously believe that the final approved tariff levels reflected meticulous industry analyses, as opposed to “split-the-difference” thinking?  Further, journalists are widely reporting that the administration’s main objective is securing organized labor’s support for the kind of health care compromise that the president’s liberal Democratic party base still staunchly opposes.  Anytime that many reporters reach similar conclusions, you know a deliberate leaking campaign – this time by the White House – is responsible.

Farther down the road, but more important for domestic manufacturing’s supporters, expect Obama to start using such isolated, marginal tariff decisions to secure support for more outsourcing-focused trade deals.  That’s certainly one interpretation that can be attached to Obama’s statement, in defending the tire tariffs, that “this administration is committed to expanded trade and new trade agreements.”

Therefore, the bigger the deal made over these victories by trade policy critics – especially in Democratic ranks – the harder they’ll find it to keep opposing a Doha Round world trade deal, for example, or a Korea free trade agreement with cosmetic changes.  Conversely, Obama will be that much more better positioned to resist critics’ entreaties for trade policy moves that actually could promote domestic manufacturing and genuine economic recovery – like endorsing the countervailing duty-centered currency manipulation bill just reintroduced in Congress, or extending Buy American practices to most federal, state, and local procurement.

Noted wits throughout history have issued warnings to the effect, “Be careful what you wish for.  You may get it.”  Trade policy critics need to heed this advice more than ever.  They should recognize more clearly that even a flood of piecemeal steps like the tire tariffs cannot possibly fix domestic manufacturing or the broader U.S. economy.  And they should focus more tightly on the sweeping change that is really needed.

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