Protectionism wars can't throw up any winners

The US International Trade Commission's (ITC) recommendation to impose heavy tariffs on tire imports from China is a violation of free trade policy. The ITC ruling came after the United Steel Workers union (USW) filed a petition with it in April, alleging that a rise in tire imports from China had disrupted the US producers' market.

But the fact is there has been no sharp increase in Chinese tire exports to the US in recent years. China's official figures show that last year tire exports saw an increase of just 2.2 percent, and in the first five months of this year the volume actually dropped - by 17.7 percent year-on-year. US data, too, indicate that Chinese tire exports fell by 18 percent and 30 percent in January and February.

The USW alleges that five tire factories were shut down in the US and about 5,100 workers lost their jobs between 2004 and this year because of competition from China. The real reason for that, however, is the sharp fall in the demand for automobiles in the US since 2007 because of the economic crisis. This year, for example, tire sales is expected to drop by more than 40 percent to less than 10 million units.

Besides, the segment of the market the Chinese tires target is different from that of US products. US Manufacturers such as Goodyear, make high-end tires that go with new cars. On the other hand, Chinese tires are generally cheaper and used mostly as replacements, and thus do not pose a threat to those made in the US. In fact, major US tire makers decided to give up the low-end market years ago.

If there has been no sharp increase in Chinese tire exports to the US and if China-made tires target a segment different from that of US products how can they disrupt American manufacturers' market? No wonder, we have not heard any protests from US tire makers.

It seems Chinese tire producers are being targeted to fuel protectionist sentiments in the US, which is still struggling to recover from recession and battling with a 9 percent unemployment rate, the highest in more than a decade.

The ITC has sent its recommendations to US President Barack Obama, who has to make a decision on the issue before Sept 17, a week before the G20 meeting in Pittsburgh. Interestingly, world leaders decided against raising new trade barriers until 2010 at the last G20 summit in London in April. So if Obama approves of the ITC recommendations, it would be unfair on Chinese tire makers and American consumers both.

The existing tariff on Chinese tires is about 3.5 percent, which the ITC wants to be raised to 55 percent in first year, with a 10 percent drop in each of the next two years. If Obama sides with the ITC, he will virtually close America's borders to Chinese tires and render about 100,000 people employed in China's tire industry (not to talk about those working in related sectors) jobless. These are the workers who produced tires worth $2.2 billion that were exported to the US last year.

Moreover, the tariffs will force Americans to pay more for the tires. And since recession has made consumers more price-sensitive, they would defer replacing old tires, increasing the risk of accidents on roads.

It will not help create jobs in the US either because tires from other developing countries will quickly replace those being imported from China. Statistics show that for every job the protective measures may create, there will be a corresponding loss of 24 jobs, many of them in the distribution and retail chains.

In a recent interview with the 21st Century Business Herald, Mickey Kantor, trade representative in former US president Bill Clinton's administration, said: "The ruling of the ITC (against Chinese tire imports) is not consistent with facts. I believe President Obama will make a decision which is not only in line with the US economic, trade and political interests, but also conducive to US-China relations."

Kantor is not alone in hoping Obama will make the right decision of not adopting protectionist measures. US tire distributors and retailers do so, too. The US Tire Industry Association, American Coalition for Free Trade in Tires, American Automotive Trade Policy Council and the Retail Industry Leaders Association all are opposing the protectionist move.

Obama's decision by Sept 17, analysts say, will be the first major test of his trade policy toward China. But this is by no means only a trade issue. It will have a great impact on Sino-US ties in general.

It is possible that Obama will reject ITC's heavy tariff recommendation. After all, the US needs China to keep buying its Treasury bonds in order to fund its stimulus package, and work with it in many other areas for mutual benefits.

But there are some other factors that have made some analysts less certain about Obama rejecting the ITC recommendation straight away. The US is still trying to recover from the economic slump, and by rejecting the ITC tariff recommendations Obama, as a Democrat, could alienate labor unions, especially the USW, which campaigned for him during the presidential elections.

Therefore, China must prepare for the worst. Perhaps, Premier Wen Jiabao should talk with Obama about China's concern and drive home the logic of why the ITC recommendations are harmful.

If Obama imposes heavier tariff, China has the option of contesting it before the WTO. But the procedure is likely to take two to three years, during which time the Chinese tire industry will suffer a big blow.

China, it appears, doesn't have an option but to take countermeasures such as imposing high tariffs on US airplanes, beans and hi-tech products. But that's a scenario we dread to see because neither side will be a winner in such a trade war.

A US trade official at a Sino-US trade talks to prepare for China's entry into the WTO a decade ago referred to the Smoot-Hawley bill, which was passed in 1930 to raise tariffs to protect American manufacturers during the Great Depression. The bill was opposed by other major economies. As a result, international trade plunged by nearly two-thirds between 1929 and 1933, with perhaps the US suffering the most. We all know what followed after that.

At that time, the US wanted China to open its market and embrace free trade. Today, we want to remind Americans of the danger of blocking foreign products by resorting to protectionism.

As told by the author, a senior researcher at the Research Center of the Sino-US Relations at Tsinghua University, to China Daily's Yao Ying.

(China Daily 08/25/2009 page9)