"China Tire Case": Obama Trade Policy Decision Nears

President Obama faces a tough decision soon that will signal how his administration will tackle the problem of balancing our trade policies. This is the upcoming "Section 421 Tire Case" decision [1]. Summary: American has been importing more and more tires from China while closing tire plants here. The surge in imports violates an agreement known as "Section 421" that we made with China when they entered the World Trade Organization. The US International Trade Commission has ruled that China is violating Section 421 and recommended tariffs on tire imports. Obama has until September 17 to choose to implement this remedy, ignore it or do something in between. (Click through [1] to a post with a number of links to background information on this decisions.)

When these trade issues came up in the past President Bush always decided against American manufacturers, allowing China and others to capture one industry after another, forcing more and more American factories to close and building up the huge trade deficit that forces us to borrow ... from China. The resulting trade deficit meant that we had to borrow more and more money to buy things that we used to just make for ourselves.

And this meant fewer and fewer well-paying jobs for our citizens. This also meant that the American consumer, the “engine” of the world economy, finally ran out of shopping power. The economic collapse shows that trade policies that make the American people poorer just make everyone else poorer, too.

So this case is part of a bigger picture. The real issue goes beyond trade. The real issue is getting America's economy back in balance for the long term with real jobs that are not dependent on financial or housing or stock market bubbles. The issue is the larger economic paradigm [2], not the resulting slowdown. To get there America needs a real industrial policy that takes a national view of the importance of manufacturing and supports it through: investment, education, R&D, etc. as well as trade policy.

One trade ruling doesn't do that, but it will signal whether President Obama is ready to take on a tough fight and tackle this problem. The appointment of Ron Bloom as Senior Counselor for Manufacturing Policy is a solid beginning in the right direction. According to the White House [3] Bloom will assist with “the President’s agenda to revitalize the manufacturing sector.” Just having an agenda to revitalize the manufacturing sector is an important and and promising step!

Of course, at the same time, this is a tough challenge. Obama's predecessor dug the country into a deep hole. Thanks to the "free trade" policies that got us where we are today, China is our banker and it is very difficult to go against your banker's wishes. However, our trade partners would do well to recognize that the American consumer is the engine of economic growth, and well-paying jobs are the engine of that consumption. Trade policies based on raising living standards on both sides of the border solves this problem.

Bob Borosage writes today, in Obama's Next Speech: Telling Our Banker We Want Out of Debt [4],

Next week, the president will address the convention of the labor federation, the AFLCIO ... That same week, he must decide what to do about the ruling of the International Trade Commission recommending that he slap tariffs of up to 55% on rubber tires being dumped in the U.S. market by the Chinese.

[. . .] We can't recover the old economy -- and shouldn't want to. … We were shipping jobs, not goods abroad, losing three million manufacturing jobs under Bush before the crash while the economy was growing. Not surprisingly, wages stagnated, family incomes lost ground, debts soared. And that was in the good times.

[. . .] [China] lends us the money to buy the goods that American companies make with jobs and technology they sent there. It does so because it pursues what has been a remarkably successful mercantilist policy designed to make it the dominant global center of manufacturing, a 21st century version of what the U.S. did in the late 1800s and early part of the 20th century.

. . . China has to be weaned of its export addiction, just as America has to revive its ability to make things in America. This is best done cooperatively, with a grand bargain revaluing the Chinese currency, while both nations join others in creating a more balanced global economy. But at the end of the day, it won't happen unless the U.S. is ready to stand up and act to protect its interests.

Some predict Obama will take the middle ground. From The Hill today [5],

“The deadline for his decision comes on the eve of the G-20 heads-of-state meeting in the Steel City on Sept. 24-25. G-20 leaders have pledged to avoid protectionism, and just last week Treasury Secretary Timothy Geithner joined other finance ministers in the group to reaffirm the U.S. commitment to fight all forms of protectionism.

[. . .] The best option for Obama might be to find middle ground. He can go along with the ITC’s recommendation, and he may also reject it completely. He can also impose tariffs somewhat smaller that those proposed by the commission, which might make both sides unhappy but allow the president to say he has found a middle ground.”

From U.S. Steel Pushes Obama to Choose Workers Over Trade [6],

“The one thing that is on the line here is the president’s credibility,” said Scott Paul, executive director of the Alliance for American Manufacturing, a coalition of steel companies such as Pittsburgh, Pennsylvania-based U.S. Steel and the steelworkers union. “If they want to pursue an activist trade agenda, they need to pursue an active enforcement agenda, and this is the first thing on their plate.”

On April 14, 2008, candidate Obama spoke to the United Steelworkers in Pittsburgh, a week before the contested Democratic primary in Pennsylvania.

“I have consistently supported in the Senate going after China,” Obama said then, after embracing union President Leo Gerard. “Here’s the thing that people don’t understand: China needs our market. Their economy is dependent on exports to the United States. We have bargaining power.”

Keep an eye on this. It is not just about tire imports, it will signal the direction that the Obama administration will take.