I’ve managed to go two full weeks without writing one post on international trade and anti-dumping (not that there has been any lack of news on those subjects mind you), but I wanted to give it a little rest. Unfortunately, the break is over because of an affirmative determination in a so-called Ã‹Å“section 421′ or Ã‹Å“China-Specific Safeguard case involving tires from China. Now before you nod off, read on because this one case lays out the future for international trade and for American buying organizations.
To simplify the 421 language, suffice it to say that the US ITC (International Trade Commission) has ruled that imports of consumer tires from China have disrupted the US market. But get this ” NOT EVEN the US Tire Industry Association (which includes US tire producers) supports the petition to provide import relief. According to the Cato Institute’s international trade policy expert Daniel Ikenson, It is really nothing more than a matter of a US union objecting to management’s decision to produce its lowest grade (lowest quality, lowest priced, lowest profit margin) tires abroad. The United Steel Workers filed the original petition in the tire case. Their goal, according to this article is to, cap Chinese imports of tires to their 2005 levels. And let’s face it if imports are capped from China, the US tire producers and other suppliers will simply source the low-end range elsewhere. China is not a sole-source provider.
So what makes this case so different from all of the other anti-dumping cases filed (including the enormous OCTG case pending)? In a Section 421 ruling, the ITC has to actually provide recommendations to the President of the United States (as opposed to merely issuing anti-dumping or countervailing duties which the President never needs to get involved with) and more important, the President needs to either grant or deny relief. If he grants relief, he’ll anger the Chinese, which in turn will escalate trade wars (remember when we put up trade barriers, so do our trading partners). If he does not grant relief, he’ll risk alienating a key support group, the unions, which he relied upon to win the Presidency.
Now why does this case matter to a steel buyer? It matters because now, for the first time, President Obama will have to make a decision one way or the other on a major international trade case. His vote on this case will draw a line in the sand regarding America’s current policies involving international trade. Trade restrictions such as this tire case (and other restrictions such as the ‘Buy American’ clause) will have long- term consequences both for trade and more important for the overall economic health of our country. History has proven protectionist policies do not work. And let’s not forget that trade policy is a part of foreign policy. If we close our doors and create barriers, we’ll have less room at the foreign policy table. And given the likes of North Korea, Iran, and conflicts in the Middle East, now doesn’t seem to be the best time to engage in trade wars.