President Obama's Upcoming "Section 421 Tire Case" Trade Enforcement Decision

When China was accepted into the World Trade Organization, they agreed that if we experienced import surges of Chinese goods that caused "market disruption," we would be allowed to limit the import of those goods. The particular section of the agreement is called "Section 421."

When the U.S. International Trade Commission (ITC) determines that the level of imports from China cause or threaten to cause market disruption to American producers of competitive products, it proposes a remedy that can include quotas or other relief. The President of the United States then makes a decision whether to enforce that recommendation.

President Bush repeatedly (seven [1] times) refused [2] to enforce Section 421 even when our own ITC found that American companies, factories and jobs were being lost. Bush claimed at the time that the destructive effects of dramatic, sudden increases in Chinese imports that Section 421 was meant to mitigate were actually good for the U.S. economy. Bush's policy was the opposite of "protectionism" -- it actually favored China's companies over our own! (I think we've seen how that has worked out.)

Very soon we will have an opportunity to see where President Obama comes down on this issue. The ITC has decided by a 4-2 vote that the U.S. tire industry has been harmed by a large increase in imports. They have recommended increasing tariffs starting at 55%, falling to 35% over three years. The Office of the U.S. Trade Representative now has to give its recommendation on this to the White House by Sept. 2.

President Obama has until Sept. 17 to make a decision. This is just one week before the upcoming G-20 summit in Pittsburgh. There is considerable pressure on him to to signal that the US will restore trade balance and help manufacturing in America, by following the rules of the WTO that China agreed to.

According to the United Steel Workers [3], which represents workers in the tire industry, thousands of jobs are being lost and tire plans in the US are shutting down. Also at this page is a chart from the ITC showing that the benefits of enforcing remedies "are two-and-a-half times greater than the costs" to consumers.

Mike Elk wrote the other day [4] at the Campaign for America's Future blog,

President Obama stands at a crossroads in the fight to rebuild the American economy.

President Obama has made a commitment in the past to uphold previously signed trade agreements. China, however, is violating these agreements by flooding the market with a massive 300 percent increase in tire imports in an attempt to wipe out American tire manufacturers. In 2004, China sent 14 million tires to the U.S. valued at $453 million. By last year, that had increased to 46 million tires valued at $1.7 billion.

Mike also points out,

Chinese importers, in conjunction with the Chinese Chamber of Commerce, have ironically formed a lobbying front group ironically named American Coalition for Free Trade in Tires. The coalition is run by Jochum, Shore & Trossevin, a Washington D.C. lobby firm run by former Bush trade officials who are cashing in on their years of U.S. government service to advise foreign competitors.

Jim Wansley, former USW Goodyear local president, testified about the impact of the closing of the Goodyear plant in Tyler, Texas where he had worked for 39 1/2 years:

The closure put hundreds of workers, many of whom had given decades of service to the plant, out of work. The closure was devastating to the workers and their families, but it is also being felt throughout the community of Tyler, Texas. Tyler has a population of about 100,000. Like many small and medium-sized towns that depend on manufacturing for middle class jobs, the loss of these jobs has taken its toll. The Goodyear plant directly benefitted the local economy by supporting local small businesses who served as its suppliers and service providers.

The plant also provided enormous indirect benefits. Jobs at the plant paid good wages and benefits, enabling workers to lead decent middle class lives, buy homes, send their kids to college, and save for retirement. These are the kind of jobs that support an entire community as families pay their doctor bills, buy new cars, and contribute to local charities. The plant and its workers were also an important source of tax revenue for the city, the county, and the state.

. . . The victims will not only be the workers and their families, but the suppliers, service providers, local businesses, and entire communities that depend on the industry. In sum, there is an enormous cost to doing nothing. If more plants like Tyler close, we can expect to suffer total additional losses of almost a billion dollars per plant, per year.

On the other hand, The Washington Post [5] points out,

If Obama backs the tariff, he risks upsetting the Chinese at a time when the United States needs China to keep buying U.S. government debt to fund stimulus efforts.

This is not just an intellectual discussion. This, like all trade issues, is about American workers losing their livelihoods and communities losing their economic base. At the same time the policies of the Bush administration -- borrowing trillions of dollars from them while allowing our manufacturing base to deteriorate -- have placed China in a very strong position of economic advantage which gives them the power to demand concessions.

For more information:

USW fact sheets, background, other info related to tire trade case against China [3]

Statements by Senators, other lawmakers supportive of USW unfair trade case claim against Chinese tires [6]

More Members of Congress, Senate praise ITC ruling in tire trade case [7]

A post at TradeReform.org: Trade Community Awaits President’s Decision on China Tire Safeguard [8]

Testimony of Senator Sherrod Brown before the U.S. ITC [9] on the tire issue.

Gilbert B. Kaplan, Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce, writing at Huffington Post on this and other trade issues with China [10].

ManufactureThis.org: Making the Case for Relief from Chinese Tire Imports [11]

One group in opposition to this ruling is American tire distributors [12], who benefit from the low prices of Chinese imports. (Note this is published by the Chinese Xinhua News Agency.)