http://online.wsj.com/article_email/SB10001424052970204488304574431641244584198-lMyQjAxMDA5MDIwODEyNDgyWj.html
So, history teaches us that it was "Tariffs" (Smoot-Hawley ?) that were the final straw that pushed the world into the Great Depression. If, indeed, President Obama feels that the U.S. economy is far enough "out of the woods" from the Great Recession that things are safe, then I guess it's "OK" to drop in a tariff - especially since it will appease some of his union backers. My problem is that "tariff" is almost a synonym for short sighted. As the WSJ Asia points out (copy attached), the 35% tariff will cost the economy 20,000 jobs in the tire distribution and retail sector while "saving" only 1,000 jobs at domestic manufacturing plants. U.S. consumers will pay $330,000 in higher tire prices for each of those 1,000 jobs.
OK class, let's review: President Obama (getting advised by his Chicago Booth School behavioral economists) imposes a 35% tariff on tires imported from China this month. Prices for tires from U.S. wholesalers have already increased 15% to 28% as a result. The only reason those prices have not gone up the full 35% is because the "wholesalers" have some cheaper inventory on hand. Low income Americans will bear the brunt of the pain because Chinese tire makers sell the cheapest tires, retailing for about $50 a piece at the lowest. So, at $70 a piece (nominally), will some people drive a little longer on the tires they have, perhaps out of "thrift" and/or annoyance?
President Obama has done all this for the United Steelworkers because_______. I have difficulty with filling in the blank there. The jobs trade off looks pretty clearly negative so I'm sure there must be something else that I can't see. As the WSJ Asia says, "The reality is that industry margins are so thin and consumer budgets are so tight that even a 35% tariff will hurt the economy. Mr. Obama's first big trade-policy call is turning out to be a very expensive mistake."
And, for the Chicago Booth economic team, WE know about the "Wal-Mart Effect", don't YOU? It goes like this: "For every dollar taken from drivers' pockets at the pump in the form of higher prices ... low cost exports from China and elsewhere have put $1.50 back in the form of cheaper retail goods."
Subscribe to:
Post Comments (Atom)
It's an interesting case. In five years, the amount of Chinese tires in the U.S. market has tripled. That's a fairly crushing increase. I do agree that the big picture needs to be looked at, and in this case, may not be, but Obama did show restraint. A federal trade panel suggested initial tariffs of 55%.
ReplyDeletehttp://www.washingtonpost.com/wp-dyn/content/article/2009/09/11/AR2009091103957.html
Interesting though, and I agree it's a tough one. The retaliations could be fairly bad for us.
The tariffs saved union jobs (huge Democrat and Obama supporters), but lost many more:
ReplyDelete* tire wholesalers who imported the tires
* warehouse workers who inventoried the tires
* shop-floor workers who changed the tires
* sales staff who sold the tires
* etc.
Even worse, the Chinese have an open-and-shut case against the USA for WTO trade violation, and will be awarded financial recompense for damages. So, the Chinese ends up getting their money regardless; the funds were merely delayed.
What is amusing is that while Obama is promoting these tire tariffs with the one hand, the other hand at the G-20 is talking about how we need to prevent protectionism.
ReplyDeleteI oppose tariffs for mature industries and have never been a union supporter, but then again I also didn't vote for Obama.