President Obama’s Upcoming “Section 421 Tire Case” Trade Enforcement Decision

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
When China was accepted into the World Trade Organization, they agreed that if we experienced import surges of Chinese goods that caused “market disruption,” we would be allowed to limit the import of those goods. The particular section of the agreement is called “Section 421.”
When the U.S. International Trade Commission (ITC) determines that the level of imports from China cause or threaten to cause market disruption to American producers of competitive products, it proposes a remedy that can include quotas or other relief. The President of the United States then makes a decision whether to enforce that recommendation.
President Bush repeatedly (seven times) refused to enforce Section 421 even when our own ITC found that American companies, factories and jobs were being lost. Bush claimed at the time that the destructive effects of dramatic, sudden increases in Chinese imports that Section 421 was meant to mitigate were actually good for the U.S. economy. Bush’s policy was the opposite of “protectionism” — it actually favored China’s companies over our own! (I think we’ve seen how that has worked out.)
Very soon we will have an opportunity to see where President Obama comes down on this issue. The ITC has decided by a 4-2 vote that the U.S. tire industry has been harmed by a large increase in imports. They have recommended increasing tariffs starting at 55%, falling to 35% over three years. The Office of the U.S. Trade Representative now has to give its recommendation on this to the White House by Sept. 2.
President Obama has until Sept. 17 to make a decision. This is just one week before the upcoming G-20 summit in Pittsburgh. There is considerable pressure on him to to signal that the US will restore trade balance and help manufacturing in America, by following the rules of the WTO that China agreed to.
According to the United Steel Workers, which represents workers in the tire industry, thousands of jobs are being lost and tire plans in the US are shutting down. Also at this page is a chart from the ITC showing that the benefits of enforcing remedies “are two-and-a-half times greater than the costs” to consumers.
Mike Elk wrote the other day at the Campaign for America’s Future blog,

President Obama stands at a crossroads in the fight to rebuild the American economy.
President Obama has made a commitment in the past to uphold previously signed trade agreements. China, however, is violating these agreements by flooding the market with a massive 300 percent increase in tire imports in an attempt to wipe out American tire manufacturers. In 2004, China sent 14 million tires to the U.S. valued at $453 million. By last year, that had increased to 46 million tires valued at $1.7 billion.

Mike also points out,

Chinese importers, in conjunction with the Chinese Chamber of Commerce, have ironically formed a lobbying front group ironically named American Coalition for Free Trade in Tires. The coalition is run by Jochum, Shore & Trossevin, a Washington D.C. lobby firm run by former Bush trade officials who are cashing in on their years of U.S. government service to advise foreign competitors.

Jim Wansley, former USW Goodyear local president, testified about the impact of the closing of the Goodyear plant in Tyler, Texas where he had worked for 39 1/2 years:

The closure put hundreds of workers, many of whom had given decades of service to the plant, out of work. The closure was devastating to the workers and their families, but it is also being felt throughout the community of Tyler, Texas. Tyler has a population of about 100,000. Like many small and medium-sized towns that depend on manufacturing for middle class jobs, the loss of these jobs has taken its toll. The Goodyear plant directly benefitted the local economy by supporting local small businesses who served as its suppliers and service providers.
The plant also provided enormous indirect benefits. Jobs at the plant paid good wages and benefits, enabling workers to lead decent middle class lives, buy homes, send their kids to college, and save for retirement. These are the kind of jobs that support an entire community as families pay their doctor bills, buy new cars, and contribute to local charities. The plant and its workers were also an important source of tax revenue for the city, the county, and the state.
. . . The victims will not only be the workers and their families, but the suppliers, service providers, local businesses, and entire communities that depend on the industry. In sum, there is an enormous cost to doing nothing. If more plants like Tyler close, we can expect to suffer total additional losses of almost a billion dollars per plant, per year.

On the other hand, The Washington Post points out,

If Obama backs the tariff, he risks upsetting the Chinese at a time when the United States needs China to keep buying U.S. government debt to fund stimulus efforts.

This is not just an intellectual discussion. This, like all trade issues, is about American workers losing their livelihoods and communities losing their economic base. At the same time the policies of the Bush administration — borrowing trillions of dollars from them while allowing our manufacturing base to deteriorate — have placed China in a very strong position of economic advantage which gives them the power to demand concessions.
For more information:
USW fact sheets, background, other info related to tire trade case against China
Statements by Senators, other lawmakers supportive of USW unfair trade case claim against Chinese tires
More Members of Congress, Senate praise ITC ruling in tire trade case
A post at Trade Community Awaits President’s Decision on China Tire Safeguard
Testimony of Senator Sherrod Brown before the U.S. ITC on the tire issue.
Gilbert B. Kaplan, Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce, writing at Huffington Post on this and other trade issues with China. Making the Case for Relief from Chinese Tire Imports
One group in opposition to this ruling is American tire distributors, who benefit from the low prices of Chinese imports. (Note this is published by the Chinese Xinhua News Agency.)

4 thoughts on “President Obama’s Upcoming “Section 421 Tire Case” Trade Enforcement Decision

  1. This is absolute drivel. Let me count the ways:
    First, Bush only rejected Section 421 relief 4 times. Not seven. The ITC has only heard seven 421 total cases – 6 under the Bush admin – and it rejected two of those for lack of “market disruption.”
    Second, the author conveniently fails to mention that the law gives the President absolute discretion to ignore the ITC’s recommendations (and that’s all they are – recommendations) where the proposed protection is not in the national economic interest or endangers national security.
    Third, the union “stats” on jobs saved and lost are poppycock. According to Rutgers economist Thomas J. Prusa, the proposed tire tariffs would ripple through the U.S. economy. Prusa calculates that each job “saved” by the ITC’s tariffs would come at the cost of at least 12 jobs lost, and possibly more than 25. Most tire-related employment in America consists of the people who distribute and install tires, not people who produce them. By depressing tire sales, a tariff would jeopardize those jobs. And depress sales the tariff almost certainly would, at least in the first 12 to 18 months. U.S. tire factories have shifted over the years to higher-grade tire manufacturing. Chinese imports come at the lower end of the price spectrum. Mr. Prusa notes that these American producers have little interest in, or capacity for, making substitutes for the Chinese imports. A tariff-induced price rise—amounting to between $300 million and $600 million economy-wide—would mainly hurt low-income American drivers. The tariffs would likely encourage those drivers to delay buying new tires as long as possible.
    Fourth, the author fails to recognize that, because the tariff is only on cheaper Chinese tires, other low-end asian products will fill the new void because American companies only make high-end tires these days.
    Fifth, keep in mind that American companies don’t even want the tariffs. Only the unions do.
    This is an easy case with very clear facts. It’s a shame that the author is trying to obfuscate those in order to advance a union-driven agenda.

  2. I have to agree with the TheFacts. This is mostly about American corporations trying to force the American people to pay more for their tires. Basically, they aren’t efficient enough to compete with the more efficient companies around the world, so they want the government to bail them out.
    For a Chinese perspective on the issue, see this article from Watching America:
    TheFacts points out some of the ways this move would cost American jobs. It would also hurt those who work for American auto manufacturers, who would face increased costs. From the Chinese article:
    “According to the Ford and the General Motors companies’ surveys, if this proposal to raise Chinese tire imports punitive tariffs is accepted one day, the manufacturing cost of every new car and truck that leaves the factory will increase by 150 U.S. dollars. This increase in cost will either weaken the competitiveness of the American automobile market, or increase the American consumer’s burden.”

  3. First of all, “TheFacts” IP addresses traces back to a firm that is a “registered foreign agent.”
    So “TheFacts” is NOT saying this is about big American corporations trying to force people to pay more for tires is incorrect. This is about a “foreign” country trying to take over America’s manufacturing.
    Thank you for also showing up to inform us of the Chinese perspective on the issue.
    I prefer to keep manufacturing – the source of economic power – IN THE UNITED STATES.

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