A couple of weeks ago we posted a piece on the ramifications of the Section 421 tire case in which President Obama added a 35% import tariff to tires (low-end tires) imported from China. In that case, we suggested that the tariffs would only shift imports to other countries as opposed to cause US tire producers to re-think their manufacturing footprint and bring jobs back home. It appears as though that is precisely the case, according to a recent article in Forbes quoting a survey conducted by Modern Tire Dealer magazine.
The survey results suggest that, “US sellers would prefer to buy their tires from other countries. Some domestic suppliers have announced price increases already. Manufacturers in India, Taiwan, Thailand, South Korea, Vietnam and Indonesia have all ramped up production. So no surprise there.
What does make us scratch our heads then all comes down to one question. Why did President Obama decide to impose the tariffs on China? If not to protect US workers, what other broader political agenda did he have in mind? We’ll offer up one perspective:
In that clip, University of Texas economist Michael Brandl suggests that Obama may have decided to act the way he did to try out a different approach when dealing with China. Professor Brandl suggests that Obama, instead of trying the carrot approach, will use a stick approach to get China to reconsider some of its trade policies, particularly around currency. Whether or not the President’s actions imply the US feels China also subsidizes industries remains to be seen.
But the tire case likely extends beyond the tire industry. President Obama may have taken a very big stand against trade policies that harm US interests in general with this first section 421 tire case. We will come out with a white paper in the coming weeks looking at the steel industry in detail. Perhaps Obama is on to something? Ironic perhaps that Obama’s legacy may have more to do with trade policy than health care, the environment or energy. Time will tell.