President Obama has announced that his administration will continue the assault on low-income drivers that began with the Cash for Clunkers program.
He did not use those exact words, of course. But that will be the effect of his decision to impose a 35% tariff on Chinese tire imports.
When China joined the World Trade Organization in 2001, it accepted a provision allowing the United States to use emergency tariffs to protect industries threatened by surging imports. Recently, the United Steelworkers union, which represents tire workers, complained to the U.S. International Trade Commission that increasing imports from China were imperiling American tire makers. The “surge” of imports (China says the number has actually declined this year) caused 7,000 American factory workers to lose their jobs, according to the union.
The ITC agreed and recommended a 55% tariff. The president obliged, although he lowered the duty to 35% the first year, 30% the second year, and 25% the third year. (The provision that allows the United States to institute such emergency tariffs expires in 2013.)
There is just one problem with the argument that U.S. tire manufacturers face imminent collapse without tariff protection: The manufacturers themselves disagree. China mainly sells low-cost, private-label tires to American dealers. American tire production, on the other hand, focuses on more expensive, high performance tires. American manufacturers decided long ago that it was simply not profitable to make low-cost tires in this country and have since outsourced their low-end operations to other countries, like China.
Since U.S. tire makers do not compete with the Chinese in the low-cost tire market, the result of the tariffs will not be more American-made cheap tires for sale. There will just be fewer cheap tires available, and those that are available will come from other low-cost exporters like Brazil.
Cash for Clunkers took serviceable, inexpensive vehicles off the market and sent them to the junkyard. Now the low-income motorists who might have bought those cars will also be denied inexpensive new tires.
The tariff has strained U.S.-Chinese trade relations, which is not a small thing. China has asked the WTO to investigate the American tariffs and has threatened to retaliate with tariffs against American poultry and auto parts. Since the U.S. exports far less to China than China sells here, China has more to lose in a trade war than we do. But we rely on Chinese cash to fund our budget deficits and other credit needs. The Chinese now hold $800 billion of U.S. Treasury debt. If China wants to get America’s attention, it has a lot more than chicken wings to work with.
So, the protectionist duty will not help U.S. companies or generate new U.S. jobs, but it will hurt low-income consumers and damage our relations with a key foreign power. Why would an intelligent and rational president, which we have, go along with this?
For the usual reason: Because it is politically expedient.
The United Steelworkers is the largest industrial labor union in North America, with more than 700,000 members. Those members and members of other unions have not been very pleased with this administration thus far, especially with the failure to win authorization to organize workplaces with a “card check” procedure rather than secret ballots.
The president needs organized labor’s support to pass his health care reform measures and to hold Democratic seats in next year’s elections. The tire dispute provided a convenient way to curry favor with the unions, or at least with their leaders. Rank-and-file workers might feel otherwise, especially when the tread-wear indicators start showing.
In Washington’s current partisan warfare, less-affluent drivers are collateral damage, or as they say on the freeways, roadkill. This president knows his priorities, and his priority right now is to turbo-charge his labor support. If struggling households can’t get decent cheap tires, too bad. They can drive on the old baldies, or they can fork over more money, or they can just take the bus. That’s good for the planet anyway.
One more question: If Obama continues to run low-income people off the roads, how will they get to the polls on Election Day in 2012?
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book
Looking Ahead: Life, Family, Wealth and Business After 55.
Posted by Larry M. Elkin, CPA, CFP®
President Obama has announced that his administration will continue the assault on low-income drivers that began with the Cash for Clunkers program.
He did not use those exact words, of course. But that will be the effect of his decision to impose a 35% tariff on Chinese tire imports.
When China joined the World Trade Organization in 2001, it accepted a provision allowing the United States to use emergency tariffs to protect industries threatened by surging imports. Recently, the United Steelworkers union, which represents tire workers, complained to the U.S. International Trade Commission that increasing imports from China were imperiling American tire makers. The “surge” of imports (China says the number has actually declined this year) caused 7,000 American factory workers to lose their jobs, according to the union.
The ITC agreed and recommended a 55% tariff. The president obliged, although he lowered the duty to 35% the first year, 30% the second year, and 25% the third year. (The provision that allows the United States to institute such emergency tariffs expires in 2013.)
There is just one problem with the argument that U.S. tire manufacturers face imminent collapse without tariff protection: The manufacturers themselves disagree. China mainly sells low-cost, private-label tires to American dealers. American tire production, on the other hand, focuses on more expensive, high performance tires. American manufacturers decided long ago that it was simply not profitable to make low-cost tires in this country and have since outsourced their low-end operations to other countries, like China.
Since U.S. tire makers do not compete with the Chinese in the low-cost tire market, the result of the tariffs will not be more American-made cheap tires for sale. There will just be fewer cheap tires available, and those that are available will come from other low-cost exporters like Brazil.
Cash for Clunkers took serviceable, inexpensive vehicles off the market and sent them to the junkyard. Now the low-income motorists who might have bought those cars will also be denied inexpensive new tires.
The tariff has strained U.S.-Chinese trade relations, which is not a small thing. China has asked the WTO to investigate the American tariffs and has threatened to retaliate with tariffs against American poultry and auto parts. Since the U.S. exports far less to China than China sells here, China has more to lose in a trade war than we do. But we rely on Chinese cash to fund our budget deficits and other credit needs. The Chinese now hold $800 billion of U.S. Treasury debt. If China wants to get America’s attention, it has a lot more than chicken wings to work with.
So, the protectionist duty will not help U.S. companies or generate new U.S. jobs, but it will hurt low-income consumers and damage our relations with a key foreign power. Why would an intelligent and rational president, which we have, go along with this?
For the usual reason: Because it is politically expedient.
The United Steelworkers is the largest industrial labor union in North America, with more than 700,000 members. Those members and members of other unions have not been very pleased with this administration thus far, especially with the failure to win authorization to organize workplaces with a “card check” procedure rather than secret ballots.
The president needs organized labor’s support to pass his health care reform measures and to hold Democratic seats in next year’s elections. The tire dispute provided a convenient way to curry favor with the unions, or at least with their leaders. Rank-and-file workers might feel otherwise, especially when the tread-wear indicators start showing.
In Washington’s current partisan warfare, less-affluent drivers are collateral damage, or as they say on the freeways, roadkill. This president knows his priorities, and his priority right now is to turbo-charge his labor support. If struggling households can’t get decent cheap tires, too bad. They can drive on the old baldies, or they can fork over more money, or they can just take the bus. That’s good for the planet anyway.
One more question: If Obama continues to run low-income people off the roads, how will they get to the polls on Election Day in 2012?
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