Obama's Tire Tariffs: A Very Valuable Failure

A few months after President Obama's 2009 decision to impose steep tariffs on Chinese tires under Section 421 of US trade law, I noted that it was looking to be an abject failure in terms of its core (and only) objective: helping the US tire industry and its workers.  Well, it's now been two years, and a (relatively) new report from the US-China Business Council (h/t Andy Roth) proves unequivocally that my initial impressions were dead-on:

Two years ago, the Obama administration imposed punitive tariffs on imported low-end tires from China. The objective was to protect and restorelow-end tire manufacturing jobs in the United States. But do trade tariffs create jobs? Were tariffs the right or wrong remedy?

The answer: Probably the wrong remedy. US imports of the low-end tires involved in the case have actually increased substantially since the tariffs were imposed—but have shifted from China to other countries. And, there is no objective evidence that the tariff boosted US tire manufacturing jobs.

The paper goes on to show that, according to US government data, "[t]he biggest beneficiaries of the tariffs are probably tire producers in Korea, Thailand,Indonesia, Mexico and other countries that replaced supply from China."  Of course, anyone who understands trade diversion could have predicted this outcome (and a lot of us did - including US Trade Representative Ron Kirk who hilariously told a Brazilian delegation that they should welcome the President's decision because they'll export more tires to the US).  Unless US manufacturers are the second-most competitive producer of widgets on the planet, tariffs on imports from the #1 widget producer will almost always result in an increase in imports from other countries' widget producers, not from the US producers.  This is not just basic economics, it's also common sense - very well-documented common sense.

The only thing not mentioned in the new USCBC report is another commonsense outcome of protectionist tariffs - pain for American consumers in the form of higher prices.  In the case of tires, I've cited anecdotal evidence of such price increases, and a previous USCBC report documented significant price increases in the 10-month wake of President Obama's decision.  It'd be good to see more such analysis in the future.  And, of course, there's that sweet Chinese retaliation against US exporters in direct response to the Section 421 announcement.

Now, while the President's tire tariffs have proven to be an abject failure, they still provide us with an extremely visible and valuable lesson about anti-China protectionism: it inevitably produces higher prices for US consumers and retaliation against US exporters yet rarely helps US manufacturers and workers - something to think about when you hear campaigning politicians in both parties peddling China protectionism as some sort of magical solution to the United States' current economic woes.

It just doesn't work like that, and they should know better by now.

Weekend Quick Hits

Apologies for the light blogging this week - it's been a brutally long one for your humble correspondent.  But here's a treasure-trove of headlines to make up for my absence:

• Alternate headline: Former USTR Portman Joins Gaggle of Protectionist Senators to Ask Current USTR Kirk to Pursue Silly Protectionist Policy that USTR Can't Actually Achieve. (Silly letter available here.)

• Must-read WSJ analysis: Blather in Washington won't affect the US-China exchange rate; Chinese inflation will.  (Yes, this should sound very familiar.)

• In case you missed it, AEI's Claud Barfield ably responds to my blog post on the United States' sordid history of "FTA bullying."  His future analysis on this issue promises to be great.

• Forbes analysis: US corporations pay a LOT of taxes, especially those dastardly oil companies!

• Shocker: "Both the European and global carbon markets could significantly increase costs for EU steelmakers, while at the same time reducing the potential for offsetting those costs, speakers at Steel Business Briefing’s Green Steel Strategies conference in Brussels argued.  European Union Allowance (EUA) prices are expected to rise to around €40/tonne by 2020, according to forecasts presented by Carine Hemery of carbon market analysts Orbeo. Moreover, the amount by which steelmakers can cut their costs by offsetting with UN carbon credits, called Certified Emissions Reductions (CERs), could fall from around €3-4/t currently to just €1-2/t in 2013-2020, she adds."  Me: Is lobbying for carbon tariffs soon to follow?

• Vladimir Putin puts on a clinic on "How Not to Improve Your Country's Chances of Getting Into the WTO Anytime Soon."

• According to a new report by sympathetic environmentalists, governments and industries are lying to us about the efficacy of wind power generation.  I'm shocked!

• Cato's Dan Griswold deflates the silly White House rhetoric that we're "on track" to double US exports in the next 5 years.

• WorldTradeLaw.net's Simon Lester has an insightful blog post about the "dangers of talking about competitiveness" in the context of international trade rules (and disputes).  I agree.

• China's commerce ministry (MOFCOM) announced preliminary anti-dumping and countervailing duty rates for sedans and SUVs from the United States.  As you'll recall, this case started back in 2009 as a not-so-subtle response by the Chinese government to the President's decision to impose safeguards duties on Chinese tires under Section 421 of US trade law.  Final rates in the China AD/CVD case will be out in a few months.

• US-China business Council released state-by-state data on US exports to China between 2000 and 2010.  The results are pretty staggering.  For example, exports to China from my home state of North Carolina - a place that's unfortunately (and irrationally) represented by many a protectionist politician - increased over 500% since 2000 and now stand at over $2.2 billion. 

• Arnold Kling discusses a new paper on trade and US employment trends that's (rightfully) getting a lot of buzz.  Tyler Cowen has more praise and discussion here.

• The 2011 Name of the Year bracket is out, and it is as awesome as ever.

• Finally, ReasonTV follows my lead but enlists the far-more-persuasive Sallie James to implode Bernie Sanders' insane war on the imported trinkets that are were sold at the Smithsonian giftshops:

Here Comes the Chinese Retaliation?

Over the last few weeks, I've cautioned that America's absurd ethanol policies and the new US WTO complaint against Chinese "green subsidies" (which arose from the United Steelworkers' Section 301 petition) could spark new trade disputes targeting US exports.  Today comes news that China might be getting the ol' retaliation ball rolling with an anti-dumping investigation that fits both of my criteria perfectly (emphasis mine):

China, the world’s biggest grains user, has started an anti-dumping investigation into U.S. shipments of dried distillers’ grains, an animal feed ingredient, adding to tensions in ongoing trade disputes.

The government will probe for unfair trade practices on products imported in the year ended June 30 after receiving complaints from four domestic ethanol producers, the Ministry of Commerce said on its website today. Distillers’ grains, commonly known as DDGS, is a by-product from making corn-based ethanol.

The probe is likely to further strain commercial ties with the U.S. a month before President Hu Jintao is scheduled to visit Washington. China’s surging livestock production has spurred imports of animal feed ingredients including corn, soybeans and DDGS.

“This case against U.S. DDGS probably isn’t an isolated incident and must be observed in the context of the two sides’ trade relations,” Li Qiang, managing director at Shanghai JC, said by phone. “The investigation outcome may not support the charge because prices of imported DDGS have been higher, so it’ll be difficult to establish damages based on price,”

Imports of DDGS may jump nearly fivefold to over 3 million metric tons this year, according to Li. Still, the probe “may not have significant impact beyond the initial concern.”...

The investigation comes after the U.S. last week filed a complaint at the World Trade Organization against China over support for its wind-energy manufacturers. A government fund for wind manufacturers requires recipients to use domestically made parts, violating WTO rules, the U.S. Trade Representative’s office said. China responded by saying its policies were in line with the regulations.

Last month China said it would extend an anti-dumping probe on U.S. sports utility vehicles and large sedans and in October it said it would consider appealing a WTO decision to reject the bulk of its complaints against U.S. duties on imports of steel pipes....

The ministry will begin the investigation today and will likely conclude the probe within a year, the ministry’s statement said. The probe may be extended under exceptional circumstances to June 2012, it said.

Yes, this new investigation could just be a big coincidence.  Then again, the last time that the United States announced that it was targeting China in response to a USW petition under an arcane provision of US trade law (Section 421), the Chinese immediately responded with two new anti-dumping (and countervailing duty) investigations of US chicken and automobile exports.  And with US ethanol tariffs and subsidies angering producers around the world, it's no surprise at all that China's Ministry of Commerce (MOFCOM) had this petition the Chinese industry sitting around. (Unlike the more transparent US system, AD/CVD petitions are submitted confidentially in China, and MOFCOM has complete discretion re: whether and when to initiate an investigation.)  So you can draw your own conclusions as to whether this qualifies as "retaliation," or whether it's just a long-overdue Chinese response to bad US behavior on ethanol.  Either way, it's not good for US exporters of DDGS.

And speaking of naughty US ethanol policies, I must admit that I didn't foresee the DDGS case itself and instead was warning about potential countervailing duty investigations of subsidized US ethanol.  But the Chinese DDGS anti-dumping case is hardly surprising because, while it wasn't the direct result of US ethanol tariffs and subsidies, it's almost certainly the indirect result of these policies, as they inevitably increase domestic production (and thus lower prices) of the ethanol byproduct DDGS.  So while other DDGS cases could be on the way, we still could also see new investigations targeting US exports of the subsidized ethanol itself.  We shall see.

One last trade-lawyerly point: I'm not exactly sure what Li Qiang means when he/she says that the case might not result in anti-dumping duties against US exports because DDGS import prices are higher than domestic prices.  This could be a legitimate point if we're talking about proving that US DDGS imports materially injured the Chinese injury, but injury cases are very complex, and simple average unit value (AUV) comparisons are a pretty poor indicator of a "material injury" determination (and those import volume increases provide strong support for an injury finding).  On the other hand, Li is mistaken if he/she thinks an affirmative dumping finding will be difficult in this case because DDGS import prices are higher than domestic prices.  (Recall that the imposition of anti-dumping duties requires affirmative findings of both dumping and injury.)  Dumping occurs when import prices are lower than prices in the home (US) market or cost-of-production (aka "Normal Value"), so domestic (Chinese) prices are inapposite.  Li probably means the former scenario, but it's impossible to tell.  Chalk it up to shoddy reporting, I guess.

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

Sunday Quick Hits

I'm just back from some business travel, and there's lots to mention, so let's get right to it:

• Ten months of Section 421 tariffs on Chinese tires produce nothing except higher domestic prices and increased imports from other countries.

• New Cato briefer: The Miscellaneous Tariff Bill: A Blueprint for Future Trade Expansion.

• New Heritage briefer: Targeting the Yuan: A Feel-Good but Futile Response.

• Op-ed: Why imports are a boon for the US economy (and another reason why Keynesianism is dumb).

• In response to Krugman's latest China currency column, monetary economist rightly asks if we can revoke PK's Nobel prize.

• Boeing-Airbus dispute: the EU strikes back.

• WSJ editorial board asks an obviously rhetorical question: does Obama or the USW run US trade policy?

• Yet another trade dispute over "green" subsidies: this time Japan goes after Canada's "feed-in tariffs" for renewable energy generation.  You were warned, people.  You were warned.

• Shocker: Dems' anti-china push is based on politics, not economics.

• Excellent NYT op-ed on how visa reform is critical to the future of US global competitiveness.  Me: something China is already doing, by the way.

• Journalist notices that US pols attack China's currency policies to "save American jobs," but they don't seem to care about those same jobs when they block Chinese investment in the United States.

• Breakthrough?  Iowa farmers starting to balk at taking government money.

That should keep you all busy for a while.

PC4D: Lee Fisher Blames Rob Portman (and US Trade Policies) for Ohio Job Losses, DMV Lines and Cancer

According to the Cleveland Plain Dealer, the Democrat Party and its Ohio Senate candidate Lee Fisher are going after his competition, Republican Rob Portman, for being a good United States Trade Representative and applying US law correctly:

Ohio Democrats who say that free trade has cost good-paying factory jobs are about to get personal, and their target is a clean-cut Cincinnati attorney named Rob Portman.

He's the Republican U.S. Senate candidate in the race to succeed George Voinovich, and he represents a rare opportunity for Democrats who blame factory closings on GOP trade practices. Portman, 54, has a record -- not just of votes from his days in Congress, but also of decisions made when he was trade ambassador in President George W. Bush's White House in 2005 and 2006.

There's no need for a faceless bogeyman or amorphous "they" in this year's Senate race when opponents say that "they" took our jobs.

"Congressman Portman supported Chinese government-backed steel companies over Ohio workers," says John Collins, spokesman for Democratic U.S. Senate candidate Lee Fisher. Fisher is currently Ohio's lieutenant governor. "Simply put," Collins says, "if you want to see the jobs Congressman Portman created after spending 20 years in Washington, you'd have to go to China."

Yet a Plain Dealer examination of trade cases and practices, including key cases that Democrats have also pored over, shows the rap against Portman is as political as it is substantive. Still, Portman faces a challenge making his case, because the issue of trade and lost jobs is nuanced and emotional, especially in a state where everyone knows someone who's out of work.

The Plain Dealer goes on to do a very good job explaining how the Dems' specific claim - about Chinese pipe imports - against Portman is complete and utter garbage.  Basically, Fisher's team and other Democrats are utilizing a classic protectionist myth that all imports are unfairly traded (on behalf of dirty rotten cheaters and the horrible tycoons who love them, of course).  In this case, the protectionists conflate two separate Chinese pipe cases:

• A 2005 case on circular welded non-alloy steel pipe under Section 421 of US Trade Law, which has nothing to do with "unfair trade" or "predatory pricing" and requires Presidential consideration of the overall "national economic interest"; and
• A series of 2008-2009 cases on other types of pipe under the US Antidumping and Countervailing Duty (CVD) Laws, which (at least theoretically) do.  

(For background on Section 421 and how it differs from "unfair trade" cases, go here.)  Portman, of course, was only USTR in 2005 and 2006, so to claim, as the Dems do, that "Bush's refusal to stop China's predatory and protectionist trade practices, based on the advice of his trade representative, helped China at the expense of jobs here in the U.S." is total rubbish.  And when called on their bluff by the Plain Dealer, the Dems' response is unsurprisingly inane:  "Is it a different pipe? Yes, it's a different pipe....  But the market fundamentals are the same."

This response, of course, is jibberish.  USTR Portman allegedly advised the President that it was not in the national economic interest to impose special, never-before-used safeguards on fairly-traded imports of Chinese pipe that were found to cause "market disruption" in the United States.  Then, three years later and after Portman was long gone, the independent International Trade Commission and Department of Commerce (unrelated to Portman's USTR) determined that imports of different kinds of steel pipe were unfairly priced/subsidized and materially injuring the domestic pipe industry.  So Portman's decision re: Section 421 had nothing to do with enabling "predatory protectionists" or "unfair trade" and everything to do with making a legally-bound determination about the impact of unprecedented pipe protectionism on the overall economic interest of the United States.  Indeed, for Portman to have decided in favor of the domestic pipe producers (one of whom is French owned, natch) and their unions just because he was from Ohio would have shown him to be a disingenuous political panderer.

And speaking of biased political pandering, that brings us to another one of the Fisher team's panderiffic statements from the Plain Dealer article:

"Ohio voters will be troubled to learn that Congressman Portman spent 20 years in Washington supporting trade policies that shipped Ohio jobs overseas and allowed cheap Chinese goods to undermine our manufacturers.," Collins, Fisher's spokesman, says.

Ahh, yes, the protectionist myth about American manufacturing decline.  Let's see, Portman was USTR from 2005 and 2006, and as I've mentioned repeatedly, the US manufacturing sector actually thrived during those years (and in 2007):

[T]all tales about the demise of US manufacturing are probably the most prevalent, and misguided protectionist myth out there.  First, until the onset of the latest recession, the US manufacturing sector was setting all kinds of performance records.  As noted in my Cato Institute paper last year: "According to nearly every financial statistic that is relevant to evaluating the health of the manufacturing sector, it was unequivocally thriving until the onset of the recent US financial crisis and recession.  In 2006, US manufacturing achieved record highs for output, revenues, profits, investment returns, exports, and imports.... [I]n 2007 new records were set for output, revenues, value added, and exports in the manufacturing sector." (See paper for footnotes, but don't bother: it's all government data.)  During this same period ('06-'07), do you know what else was setting records?  Yep: imports.  Of course, the strong, positive relationship between imports and US manufacturing success makes total sense when you consider that almost 60% of all imports into the United States are capital goods and equipment - things that American manufacturers rely on to produce their globally competitive products (in record amounts).

Oh, and just so we're totally clear, the US manufacturing sector was, and remains, the world's largest: according to the United Nations Industrial Development Organization, US factories are the world’s most productive, accounting for 25 percent of global manufacturing value-added.  By comparison, Chinese factories account for only 10.6 percent. (But don't just take my, or the UN's, word for it: the White House's 2009 "Manufacturing Framework" also made America's manufacturing dominance crystal clear.)

So when Rob Portman was USTR, US manufacturing was absolutely killing it, and we're doing pretty well today too.  Nice work, Ambassador!

But hey, maybe it's just Ohio's jobs that were destroyed by Portman's pernicious trade policies.  Well as the handy chart below makes clear, Ohio's unemployment rate was around 5.5% throughout Portman's tenure and only took a nosedive after Portman left his USTR post and the Great Recession took hold:



I've also shown you Texas' unemployment over the same period because I think it's quite amazing that Ohio and Texas had very similar unemployment rates until just before the recession began.  It was only in 2007 and beyond - particularly after the Fall 2008 crash - that Ohio's unemployment rate goes off the rails and Texas' rate remains relatively low.  What's also interesting about that period, of course, is that global trade dramatically contracted, as did the US trade deficit.  So Ohio's unemployment cratered at the very same time that the US trade deficit was dramatically shrinking, and yet the Ohio Democrats want to blame "free trade" and imports for their problems?

Umm, no.

But let's go back to Texas for a second.  As the employment data above make clear, Texas has absolutely dominated Ohio (and other rust belt states) during the recession.  And as the table below demonstrates, Texas was trading like crazy over the same period.

Texas crushes Ohio in exports and imports in 2008 and 2009, and it's not just a population advantage.  The per capita numbers are almost as stark.  Texas also is running a trade deficit in both 2008 and 2009, so it's not like a massive trade surplus is the reason for Texas' success.  Pretty interesting, huh?

Now, because I'm not a political hack, I'm not going to sit here and claim that it's only because of free trade that Texas has so thoroughly thrashed Ohio over the last 2-3 years.  There are lots of reasons, including tax, labor and trade policies, that have caused Texas' economy to weather the storm better than Ohio's (and that of pretty much every other state in the union).  But at the same time, the trade and employment data above should end, once and for all, the disingenuous political claims that Rob Portman's "free trade" advocacy somehow led to Ohio's demise.  It's just not true, and to allege as much is to shamefully mislead a scared Ohio citizenry that just doesn't know any better.

Section 421 Decision Does Nothing to Change US Consumption of Imported Tires

It's been a while since we last checked in on the debacle that is the President's September 2009 decision to impose prohibitive tariffs on Chinese tire imports under Section 421 of US trade law.  Back then, the only things that the President's decision had caused were skyrocketing domestic tire prices and Chinese retaliation against American chicken and automobile exports.  No new American jobs, no increased domestic production, nada.  (Yet the price pains continue to mount.)  We also had some preliminary import data showing pretty significant "trade diversion" - i.e., the shift in imports from the now-high-tariff China to other, still-low-tariff exporting countries like Brazil, Mexico and Korea.  And, of course, because other imports took up the Chinese slack, those static domestic jobs and production stats were pretty much expected.

Now from the US International Trade Commission comes a little more proof that Section 421 did almost nothing to change US import consumption habits and instead merely shifted Americans' purchases of Chinese tires to other foreign-made tires.  In a recent public report issued as part the ITC's current investigation of whether to expand Thailand's duty-free access to the US tire market under the Generalized System of Preferences (background here), the ITC found that imports accounted for almost the same share of total domestic tire consumption in 2008 (with no Section 421 tariffs) as it did in 2009 (with four months of Section 421 tariffs).  Here's the money-graphic:

As you can see, there was only 1.1 percentage point change in the import-to-consumption ratio between 2008 and 2009, and 2009 was still 4 percentage points higher than 2007.  Maybe the Section 421 decision stopped the rapid acceleration in US import consumption; maybe it didn't.  It's difficult to really say.  But that's certainly not what the White House promised us because they weren't championing Section 421 as a mere band-aid.  It was supposed to "level the playing field for American workers in the tire market."

So much for that, huh?

Friday Quick Hits: Headlines Edition

I have a lot to share, so it's headlines-only today.  Yes, yes, I know: I'm lazy.  But hey, you're still getting your money's worth in this deal.

• Koreans are big drinkers; too bad American wine faces a stupid tariff that exists only because the President is afraid to confront his base re: US-Korea FTA.

• USTR: "The KORUS FTA would be great for the US economy, but we have no timeline because, well, our administration stinks at selling free trade." 

• Japan renews its WTO request to impose almost $250 million in tariffs on US exports because of America's failure to stop zeroing in antidumping reviews.

• The EU fecklessly hid an official document showing that its biofuels policies actually harm the environment.

• AEI's Phil Levy: Europe's stupidity is making a US-China clash over currency more likely.

• WSJ's Sternberg: globalization means that RMB appreciation won't dent the US-China trade balance (via Mark Perry).

• Six reasons to repeal the capital gains tax.

• US Transportation Secretary: "A Mexican Trucking solution is 'very close.'  Yes, I know I said it was 'very near' two months ago, but can you please stop laughing at me?  Oh, come on, stop.  Please?"

• US manufacturing sector grows for the ninth straight month.

• US manufacturing sector added the most jobs in April (44,000) since 1998.

• Could Malaysia join the TPP?

• China preliminarily decides to impose countervailing duties up to 31% on US chicken exports.  No one mentions Section 421.

• The myth that is China's green energy dominance.

Monday Quick Hits

A few noteworthy items for those of you whose brains weren't fried by yesterday's WTO analysis:

• Crappy Anniversary!  On the six month anniversary of President Obama's bad decision to impose tariffs on Chinese tires under Section 421 of US trade law, Reps. Kevin Brady (R-TX) and Dan Boren (D-OK) have sent a letter to President Obama asking him to report on the economic impact of the controversial trade measures (hint: it hasn't been pretty).  As you'll recall, Brady and Boren sent USTR a similar letter back in January and apparently were totally ignored (shocking, I know).  Money quote: "This tire tax affects all Americans—workers, distributors, retailers, and consumers.  Fortunately, the law gives the President the opportunity to review the tax after six months to see if it is working or not. In January, Congressman Dan Boren and I wrote to the Administration and asked for confirmation that it has a system to collect the full range of information so that the President can fairly assess the impact of the tax on all Americans. Regrettably, no such system is in place."  I'm sure it was just an oversight, Congressmen!  Surrrrre.  National Journal reports, however, that Ways & Means Democrats remain opposed to such sanity and transparency, calling the tire tariffs "one in a series of actions he has taken to enforce trade laws," and urging Obama to "do more to address the trade gap with China...."  As we all know, both the "421 as enforcement" and "trade deficit" assertions are utter nonsense and should be treated as such.  But they do provide yet another example of the Democrats' reliance on these two classic protectionist myths.  Broken records, these guys.

• China currency sanity exists; you just need to know where to find it.  For those of you who still want more good stuff debunking the absurdity coming from many of our elected officials and pundits on China's currency policies, I recommend the following: Stanford's Ronald McKinnon drops some serious knowledge on a stable yuan-dollar exchange rate and the yuan and the trade balance;  Reuters' John Kemp on global imbalances and the "Triffin dilemma" (a year old but still good); and AEI's Mark Perry on that dastardly currency manipulator that is, err, Hong Kong?

• Is the US really ending "zeroing"?  Washington Trade Daily reports (no link) that "The United States is finally giving up the battle with the World Trade Organization over the continued use of the controversial 'zeroing' methodology in calculating antidumping duties, US Trade Representative General Counsel Tim Reif said on Friday....  Speaking at a meeting of the Society for International Law, Mr. Reif said he still believes that the WTO is going beyond the bounds of Article Two of the [Anti-dumping] agreement, but said USTR now is working interagency to administratively correct the 'zeroing' issue and bring the United States into compliance."  As you may recall, US officials said similar things at an early-March WTO meeting (and were met with skepticism by me and everyone else).  However, this is now the second time that the US has publicly stated, without subsequent retraction, their desire to finally comply with multiple WTO rulings against the controversial practice, so maybe Reif & co. actually mean it.  I've complained loudly for months about US refusal to stop zeroing in administrative reviews, and how that refusal could end up costing US exports billions in WTO-authorized retaliation, so if this turns out to be true, it's a very welcome development and deserves to be praised.  The proof, however, will be in the interagency pudding.  So stay tuned.

Exit question: given that the United States was endlessly litigating (and losing) WTO disputes on its zeroing practices in order to maintain its negotiating position in the WTO's Doha Round that WTO rules should be changed to expressly allow for zeroing, does the change in US position signal that USTR has totally given up on Doha?  Cripes.

Monday Quick Hits

A few things to note on a slow news day here in the nation's snow-covered capital:

• Vietnam has filed its first ever WTO dispute settlement challenge - against the United States' practice of "zeroing" in anti-dumping administrative reviews of Vietnamese shrimp imports.  The complaint is available on the WTO's website here.  I've discussed the practice of zeroing several times, most notably the United States' new strategy of "settling" certain WTO complaints against US zeroing.  Those cases, however, dealt with original investigations, not reviews, where the US appears to still be fighting tooth-and-nail at the WTO.  Indeed, the EU just asked the WTO to let it impose over $400 million in retaliatory tariffs on US exports due to the United States' refusal to comply with adverse WTO rulings against US zeroing in administrative reviews.  (So much for that grand plan to expand US exports, huh?)  Given the varying US responses to zeroing cases, the new Vietnam complaint - and the new-ish one by South Korea on zeroing in original investigations - will be worth watching.  (Oh, and yes, it's completely absurd that the US still hasn't given in on zeroing.)

• Free traders in Congress (all two of them!) have reintroduced the "Affordable Footwear Act" (H.R. 4316 ) which would mandate the unilateral elimination of abnormally high US tariffs on imports of low-cost shoes that aren't even made in America anymore.  The bill highlights a great example of the idiocy and immorality of US tariffs and is a good first step to remedying such nonsense.  Of course, the fact that legislation scrapping a pointless tax on a basic necessity that disproportionately harms poor Americans can't pass with overwhelming bipartisan support is a sad commentary on the state of US trade policy, wouldn't you say?

• China announced the preliminary results of its anti-dumping investigation against US imports of chicken.  Duties ranged from 43.1% to 105.4%, and a final determination isn't expected for several months.  Preliminary results of China's countervailing duty investigation against the same US product will be out in the next couple months.  And, yes, we all remember how this investigation came about - *cough*tires*cough*.  (Nice WSJ editorial on this whole mess here.)

• Finally, we have some China trade news that all Americans - protectionists and free traders alike - can support: American "shoot-first" point guard, and troubled NBA castoff, Stephon Marbury has been shipped off to China.  He's running point for the Shanxi Brave Dragons, and is already one of the Chinese Basketball Association's biggest stars.  Noted Knicks fan and China antagonist Sen. Chuck Schumer has thus far been unavailable for comment.

That's all for today.  Now if you'll excuse me, I need to go prep for the next blizzard that will be hitting DC tomorrow.

Lawmakers Urge Review of Tire Tariffs, But Why Stop There?

From today's headlines comes welcome news that two US congressmen - one Republican and one Democrat - have called upon the Obama administration to analyze the effects of President Obama's bad decision to slap prohibitive tariffs on imports of Chinese tires under Section 421 of US Trade Law:

In a letter to U.S. Trade Representative (USTR) Ron Kirk, two congressmen demanded that the Obama administration establish a comprehensive system of monitoring the economic effects of the special tariffs on Chinese passenger and light truck tires levied last Sept. 11.

“It is…essential that the ITC (International Trade Commission) and the administration monitor the effects of the tariff not only on the domestic tire producers, but also on other domestic sectors, including distribution and retail, and on consumers,” said Reps. Dan Boren, D-Okla., and Kevin Brady, R-Texas, in their Jan. 21 letter to Mr. Kirk.

The congressmen said they had not heard of any jobs created by the tariffs, which amount to 35 percent in their first year on top of the normal 4-percent tariffs on tire imports from China. But they had heard of significant increases on tire prices as well as job losses in the tire distribution and retail sectors, they said.

Whatever system the administration puts in place to monitor the effects of the tire tariffs must consider not only employment at U.S. tire manufacturing plants, but also such items as retail price trends for domestic and foreign tires; changes in tire imports from countries other than China; and changes in tire retail and distribution employment, the congressmen said.

In a press release, the Tire Industry Association (TIA)—which opposes the tariffs—praised the Boren-Brady letter.

This is the first time the U.S. has implemented a trade remedy under Section 421 of the Trade Act, said Paul Fiore, TIA director of government and business affairs. “The United Steelworkers (USW) made some very far-reaching claims concerning this tariff, and the Office of the USTR should be diligent in setting up a comprehensive, verifiable system for quantifying the effects of this tariff,” Mr. Fiore said....

I've already documented most of the harmful unintended consequences of the Section 421 decision - namely, higher prices, supply shortages, trade diversion and no increased domestic production or employment - so an official government report on the subject would be an awesome rebuke of the President's tire protectionism.  It's also really great to see government officials - in both parties, no less! - raise such rarely-considered issues with the White House.

But why stop with just the Section 421 decision?

As I've noted before, US trade policy is chock-full of high tariffs and quotas imposed on everyday necessities like food, clothing and shelter in order to line the pockets of politically-connected domestic industries.  And the United States International Trade Commission (ITC) has already shown that these "tariff peaks" and other barriers dramatically increase domestic prices and thus act as a hidden tax that disproportionately harms lower-income American families.  Moreover, there are literally hundreds of different anti-dumping duties and countervailing duties on a wide range of products, thus raising domestic prices in order to assist the insular US industries that petitioned for import protection.  All of these tariffs and duties remain in place, yet never once has anyone in the Government examined their effects on third-country imports or on American consumers, importers, retailers, downstream users and their employees.  The "Brady-Boren" report would do just that for the US tire market, and it thus would shed some much-needed light on protectionism's unreported victims.

As Dan Ikenson and I explained in a paper last year, this kind of transparency is absolutely critical to countering the protectionist myths that permeate today's trade debate:

President Obama should announce something like a “Trade Transparency Initiative,” with the goal of publishing independent findings about the effects of trade and trade barriers on the U.S. economy and its constituent elements without political interference.... The ITC, or some other agency that is sufficiently shielded from political influence, should be allowed to fulfill its statutory authority to conduct independent research and publish findings on matters related to trade, and the public should be directed to those findings as objective sources of analysis.  An independent process like that—which is properly publicized by a president promoting change—would probably help disentangle trade from the truth-suppressing effects of politics and help fulfill the president’s goal of having a more transparent and open government.

Perhaps the Obama administration’s first study under the Trade Transparency Initiative should focus on the U.S. Tariff Schedule. The report would likely reveal that U.S. tariffs are highest on shoes, clothing, clothing inputs (like fabric, yarn, and cotton), food (including fruits and vegetables), and food ingredients (like sugar, wheat, and soybean). In conjunction with trade remedy duties on imported steel, lumber, and cement, U.S. tariffs and quotas on food and clothing ensure that the prices of life’s most basic necessities (food, clothing, and shelter) are artificially inflated by government policies. And since lower-income Americans spend a higher proportion of their budgets on life’s necessities, these trade policies amount to the kind of regressive tax that Democrats profess to abhor....

The unbiased empirical results of the Trade Transparency Initiative would give President Obama the ammunition he will need to put congressional protectionists of both parties where they rightfully belong—on the permanent defensive.

Unfortunately, this past year has taught us a lot about the White House's priorities, and trade transparency doesn't - to put it nicely - appear to be high on the President's list.  Thus, while I applaud Congressmen Brady and Boren for their attempts to unearth the Section 421 decision's dirty little secrets, I seriously doubt that a Trade Transparency Initiative - on tires or any other protected product - is coming anytime soon.

USTR Looking Into Increasing Imports of... Tires?!?

For your ever-expanding "Do They Have A Clue?" file (maybe cross-referenced in your "It's All Politics" file), comes seemingly bizarre news today from the US International Trade Commission (ITC) that the Office of the United States Trade Representative (USTR) has formally requested that the ITC advise on the economic effects of allowing increased imports of passenger tires from Thailand to enter the United States duty-free under the US Generalized System of Preferences (GSP).  I say "seemingly bizarre" because, as you'll recall, USTR in September advised the President to impose prohibitive tariffs on Chinese imports of the very same product in order to protect the domestic tire industry from harmful import competition.  But now, only three months later, they're looking at maintaining zero tariffs on surging tire imports from Thailand?

What gives?

Well, it turns out that USTR has found itself in quite the pickle, and this situation provides us with a simply-too-good-to-be-true example of (i) the very real problems that arise when bad politics trumps good policy, and (ii) the folly of bilateral protectionism in a globalized world.

Please allow me to explain.  But before I do, I need to give you some very basic (read: boring) background, so please bear with me.

Pursuant to its authority to administer the US GSP program, USTR asked the ITC to provide "advice on whether any industry in the United States is likely to be adversely affected by a waiver of the competitive need limitation CNL and provide advice as to the probable economic effect on U.S. industries producing like or directly competitive articles (new pneumatic radial tires, of rubber, of a kind used on motor cars (including stations wagons and racing cars)), on total U.S. imports, as well as on consumers."  Under GSP, certain imports from certain "developing" (read: poorer) countries are allowed to enter the United States duty-free in order to help the countries' manufacturing sectors and threreby encourage their economic development (and benefit US consumers in the process).

GSP, however, does not give developing countries carte blanche to export unlimited quantities of covered goods.  Instead, each product has a "competitive need limitation" (CNL) which provides a country-specific ceiling on GSP benefits for the product.  A country will automatically lose its GSP eligibility with respect to a product if the competitive need limitation is exceeded.  For 2009, CNLs require the termination of a country's GSP eligibility on a product if, during the calendar year, US imports from that country: (i) account for 50 percent or more of the value of total US imports of that product; or (ii) exceed $140 million. When one of these limits is exceeded, products will be found “sufficiently competitive,” and by statute, all GSP treatment (not just above the threshold) for any article deemed to be "sufficiently competitive" will terminate on July 1 of 2010. 

However, if a country is granted a "CNL waiver" for a product deemed "sufficiently competitive," then the duty-free treatment will remain in place (i.e., the ceiling on the GSP benefits for that product will be removed).  The President (through USTR) may grant a CNL waiver - typically based on a petition to do so from a private party - if he (i) receives the advice of the ITC on whether any industry in the United States is likely to be adversely affected by the waiver; and (ii) determines, based on the ITC's advice, that the waiver is in the "national economic interest of the United States." (For you unstable/curious people, the full law is here.)

So now back to today's USTR request that the ITC to investigate granting a CNL waiver for imports of tires from Thailand.  Basically, USTR is asking the ITC to determine the "probable effect" that removing the "ceiling" on duty-free tires from Thailand, thus increasing such imports, would have on the US economy.  And USTR will use the ITC's report to determine whether granting the waiver is in the "national economic interest," and thus whether to raise the tariff on Thai tires from zero to the standard rate of 4% or keep it duty-free.  Normally, this process would be no big deal - indeed, just standard practice under GSP for CNL waivers - but this time around, it certainly warrants some attention because, as noted above, USTR in September of this year recommended that the President impose 35% tariffs on the very same imports from China under Section 421 of US Trade Law in order to protect US tiremakers and their workers from the "market disruption" (i.e., material injury) caused by such imports.

As a result of this (bad) decision, Chinese tire imports dramatically decreased in October, and imports from other countries increased due to the predictable (and predicted) "trade diversion" that occurred when US tiremakers - exactly as they forecast to the ITC months earlier - didn't increase their production.  US tire prices also skyrocketed by as much as 40%, with some retailers reporting major shortages and many poorer Americans being left unable to buy new tires during the busy - and dangerous! - winter season.  (Did I mention it was a bad decision?)

A quick review of the import data for January-October 2009 indicates that a little over $120m worth of Thai tire imports have entered the United States under GSP - up about 16% over 2008 levels and quickly approaching the $140 million CNL threshold for 2009, particularly considering that the 421 ruling didn't take effect until late-September.  As a result, four companies - Bridgestone (a US company, by the way), Yokohama, Sumitomo, and Falken - each petitioned USTR in November for a CNL waiver so that post-July 2010 imports from Thailand will still be able to enter the United States a zero duty (instead of the standard 4% duty rate).

These petitions spurred USTR's lawful procedures for considering a CNL waiver, including its request to the ITC, in order to decide whether to increase tariffs on tires from Thailand.  And, boy, have they put USTR in a bind - one entirely of it's own making, I might add:

• On the one hand, the Section 421 decision has wreaked havoc on the US tire market, thus causing (i) US tire prices to careen out of control, and (ii) imports from Thailand to abnormally spike and thus potentially face a long-term tariff increase because they unexpectedly exceeded the CNL in 2009 (and probably thereafter).  Thus, granting the CNL waiver and keeping tariffs on Thai tires at 0% would greatly benefit US consumers, importers and retailers, as well as Thailand and its exporters (including US-based Bridgestone).  It also would be a show of goodwill to a foreign ally and developing country that was an innocent bystander in the Section 421 mess.
  
• On the other hand, USTR said in its Section 421 decision that trade protection - through higher tariffs on tire imports - is absolutely necessary to prevent further harm to the US tire industry and its workers, represented by the United Steelworkers union (USW).  And because the tires at issue are a pretty fungible commodity (i.e., low-end Chinese tires are basically interchangeable with low-end Thai - or Korean or any other country's - tires), any formal, discretionary decision by USTR to refuse to increase tariffs on tire imports from another foreign country through the CNL waiver process (thus leading to more imports, of course) would completely undermine the Obama adminstration's Section 421 rationale and expose the President's decision for the silly political stunt that we all knew it was.  And it would also inevitably lead to howls by the USW.
  

Quandary!  (You see, this is why politicians make bad policymakers, and why bilateral protectionism is a really stupid game.)  So what's USTR going to do?

Well, first they'll try to get cover from the "non-partisan" ITC to say that the CNL waiver will or won't be in the "national economic interest" - after all, US law (19 USC 2463(d)(2)) requires the ITC report on the waiver's probable economic effects and requires the President to consider the ITC's findings when deciding whether to grant a waiver.  So the Obama administration can use the ITC's findings (and US law) as their excuse for granting/denying the CNL waiver once the full 2009 data are complete in February 2010.

Hooray for political scapegoating!

But there's only one problem: what kind of cover will the Obama administration really get from the ITC?  Keep in mind that the President's Section 421 decision also was based on a discretionary determination of whether the tire tariffs were in the "national economic interest," and it relied on the same kind of ITC economic projections.  So can the ITC models used to determine that (i) increased Chinese tire imports were harming US producers, and (ii) high tariffs wouldn't harm the US economy, now show that (i) increased Thai imports won't harm US producers, and (ii) zero tariffs would help the US economy?  Put simply, can the ITC, and by extension the President, really say that Chinese tires are bad for the economy (and thus warrant tariffs), but Thai tires are great for it (and thus should be duty-free)?  If they do, then the ITC's new decision would essentially prove that its conclusions re: the Section 421 tariffs not harming the US economy were dead wrong (or that something fishy's going on - which I doubt from the straight-shooting ITC).  Yet if the ITC finds that granting the CNL waiver would, as the Section 421 tariffs have already shown, hurt US producers, then US consumers/retailers/importers and Thailand all get slammed.  And how can that be in the "national economic interest"?

And thus how will the ITC's report really solve anything?

Well, your guess is as good as mine, but I must admit that I'm going to enjoy the heck out of watching the spinmeisters at USTR attempt to wiggle their way out of this self-induced mess.

Three Months of Section 421: Almost As Bad As Expected

It's been a while since we last checked in on the President's September 11, 2009 decision to impose high tariffs on Chinese tire imports under Section 421 of US Trade Law.  At the time of the tariffs' imposition in late September 2009, I and other free traders predicted that all sorts of bad things would result from the Section 421 decision, including:

1. Although the tariffs would dramatically decrease Chinese tire imports, they wouldn't increase American tire production and jobs.  This prediction was based on two main things: (a) trade diversion - i.e., an increase in low-cost tire imports from other countries, rather than ramped up US production; and (b) public statements by US tire producers that they had no intention of getting back into the low-end market (they had transitioned to high-end tires long ago).
   
   
2. The tariffs would significantly increase US tire prices, thus hurting consumers and/or threatening downstream businesses (importers, retailers, etc.) and their employees.  And because these price increases would focus on the low-end segment of the tire market, poorer Americans would be hardest hit.  Thus these particular tariffs would be even more regressive than tariffs typically are.
   
   
3. The 421 decision would lead to significant retaliation from the Chinese government and undermine global resistance to protectionism.
   
   
4. The 421 decision would provide a strong indication that "in the important choice between a coherent, economically-sound trade policy that advances American foreign policy interests and placating political supporters, President Obama strongly prefers the latter."
   
   
5. Because of the ease of bringing a 421 case and proving "market disruption" under US law, the President's decision would lead to a flood of new cases brought by aggrieved US labor unions.

Because the Section 421 decision just celebrated its three-month anniversary, I figured that now would be a good time to see how our predictions have panned out.  Based on the available evidence, I think it's safe to say that the decision was almost as bad as expected.

First, let's look at all of the depressing things that we got right: 

(1) American tire production has not increased, and imports from other countries have risen significantly.  Several reports indicate that US tire manufacturers haven't increased domestic consumption in the wake of the Section 421 decision, while imports from other countries have increased since September because US tire importers have found other suppliers and/or Chinese suppliers have moved production to other countries.  For example, in its 3Q conference call, Cooper Tires management stated that they will not increase US production in response to the Section 421 tariff but instead will import more from Mexico.  Chinese producers also have shifted production to Taiwan and other Asian countries, and a Korean trade agency has predicted that Korean producers will benefit greatly from the US tariffs.

Preliminary data from the International Trade Commission support this anecdotal evidence (click to enlarge):

The ITC only has data through October 2009, and although it's far too early to draw any definitive conclusions from only one month of post-421 data, these numbers certainly indicate Chinese imports dropped dramatically in October, and imports from Canada, Korea, Thailand and elsewhere began to take up the slack.  Thus, trade diversion appears to be occurring, but we'll know more in the next couple months as old orders are cleared out and new suppliers are solidified.  Considering the aforementioned anecdotal evidence about US production and new import sources, it's a rather safe bet that these trends will continue in 2010.

One final thought about the ITC data: the big spike in Chinese imports right before the 421 decision definitely indicates that US retailers were stockpiling Chinese tires in anticipation of the President's decision.  The disappearance of these stockpiles could be a significant issue for prices and supply in 2010, but again we need more data to be sure.  And speaking of prices...

(2) US tire prices have skyrocketed and are projected to further increase in 2010.   Prices for low- and high-end tires have increased between 25 and 40 percent, as pretty much every major producer has announced price increases because of the Section 421 tariffs (rightly or not).  Also just as expected, poor Americans have been the hardest hit, with many opting for cheaper (and less safe) used tires or, even worse, driving on their old tires.  A typical quote: "'You figure a tire that costs 100 dollars is now 135,' says Bryan Frank, of Frank's Tires. "Multiply that by four and you're spending an extra 140 dollars.'"  That's a lot of cash for your average, cash-strapped American family.

The only "bright side" to this awful news: so far, retailers and industrial purchaser have been able to pass most of these price increases on to their consumers, instead of eating the additional costs and laying off employees.  However, the Tire Industry of America has announced that it will lobby for the repeal of the "devastating" tariffs in 2010, so clearly the industry is getting hurt by the Section 421 decision.

(3) The Chinese government has retaliated at home and at the WTO.  In early December, China requested the formation of a WTO dispute settlement panel to rule on the legality of the 421 decision.  More importantly, however, China has taken retaliatory matters into its own hands with a series of new trade remedies investigations of US exports.  As I've noted previously, China immediately responded to the 421 announcement by initiating antidumping and anti-subsidy (countervailing duty) investigations of US chicken and automobile exports.  Since then, China also has gone after American steel and chemicals.  While the trade volumes involved in these cases aren't huge (although the chicken case could affect hundreds of millions of dollars), the autos decision might end up proving really costly.  China's automobile consumption has exploded of late, forcing China to become for the first time a net importer of autos.  So if a Chinese AD/CVD order ends up in place against US automobile exports, it could force the Big Three to increase their China-based production, rather than shipping more US-made cars to China.  (I wonder how the UAW would feel about that.)

Oh, and as I noted previously, China has used the Section 421 decision as an excuse to abandon voluntary, "sectoral" negotiations to eliminate tariffs on chemicals and other products as part of the WTO's Doha Round.  Grrreat.

(4) The Section 421 was a perfect harbinger of the administration's political aversion to free trade policies.  As I've lamented repeatedly over the last few months, President Obama has established a firm policy of choosing political expediency over free trade principles, and 421 was only the tip of the iceberg this Fall.  Whether it was bilateral disputes (e.g., Mexican Trucking, Buy American, Chinese Chicken), pending Free Trade Agreements (FTAs) with Colombia, Panama and South Korea, a negotiating "strategy" for the WTO's Doha Round, carbon tariffs, or a new manufacturing policy, the Obama administration always opted for assuaging the protectionists in his own party, rather than helping the US and global economies or advancing America's foreign policy interests. Considering the long tradition of American Presidents - Republican and Democrat alike - typically championing free trade above petty politics, this development must rank up there as one of 2009's biggest disappointments.  (Yes, I know I'm extremely biased.)

Now, while free traders' predictive powers have (obviously) been really good, we did miss on one thing in the Section 421 aftermath: so far, there have been no other cases filed under Section 421.  Indeed, back in late October, USW President Leo Gerard stated that his steelworkers had no intention of filing any more Section 421 petitions in the near future.  Thus far, Gerard's statements have proven true, although the US Textile Industry hinted earlier this month that a new 421 petition might be forthcoming.  Considering that any petition takes a few months to assemble, we do need to wait a few more months before officially declaring this prediciton a dud, but it's sure looking that way so far (particularly the "flood" part).

But hey, nobody's perfect, right?

So to recap: we predicted trade diversion, no US production increases, higher US prices, Chinese retaliation and new 421 cases.  And after three months of tariffs, we've seen trade diversion, no new US production, higher prices, and Chinese retaliation, but no new cases.  As such, I think it's safe to say that the President's decision to impose 35% tariffs on Chinese tire imports under Section 421 was almost as bad as expected.

Almost.

That said, if the price increases continue and begin to affect employment among tire importers, retailers and commercial purchasers, the President's decision could actually prove much worse than originally predicted.  We'll definitely know more in the next few months, and don't worry, I'll certainly be there to report on it.

Some Needed Perspective on "Trade War" Reporting

Although I have no scientific data to back this up, I think it's safe to say that I take a backseat to very few people in my criticism of recent US trade policy. That said, I've grown quite concerned with a growing number of media reports that a recent spike in US trade remedies (i.e., antidumping and countervailing duty) cases is a scary signal of burgeoining US protectionism or an impending "trade war" with China.  For example, last week the AFP reported:

Tensions between the world's number-one and number-three economies intensified last week when the US slapped anti-dumping tariffs of up to 99 percent on imports of some Chinese steel products used in the oil industry.

Similar statements have appeared in lots of recent op-eds and wire service reports, each pointing to a 2009 increase in antidumping and CVD cases as hard evidence that a tit-for-tat trade war between the United States and China is brewing. (Insert ominous "dah-dah-duhhhh" here.)

Such "analysis," however, demonstrates a basic misunderstanding of how AD/CVD cases are initiated and decided in the United States, and it might actually do free traders a disservice.  Sure, China is complaining, but that's hardly anything new.  The fact is that US government does not bring AD/CVD cases.  They instead are the result of massive petitions filed under US law by private domestic companies (or coalitions of companies) and/or their unions pursuant to their commercial interests.  Such petitions typically take months to produce, costing hundreds of thousands of dollars in lawyer and economist fees - hardly an efficient retaliatory weapon.  The US government (through the Department of Commerce) can, by law, have a small role in the crafting of an AD/CVD petition but only in a basic advisory capacity (e.g., to assist the petitioner with meeting the basic legal criteria for a proper petition) and little more.  And once filed, cases are essentially on "autopilot," with DOC's initiation of the case, as well as affirmative preliminary determinations by the DOC and the US International Trade Commission, all but certain (a common free trader complaint against the law, actually).  Meanwhile, the President himself has no formal role in the process.

Such automaticity, and the lack of White House involvement, means that it's a real stretch to claim that the filing of an AD/CVD petition - or the subsequent initiation of case against China, the preliminary domestic injury determination by the ITC or the preliminary calculation of antidumping or CVD duties by DOC - is a sure sign of US protectionism.  Indeed, even a final injury determination or the actual imposition of AD/CVD duties isn't a good indicator of surging American isolationism: according to a plethora of studies, the filing of an AD/CVD petition almost always results in the final imposition of remedial tariffs (unless respondents hire my firm, of course).

Yet even if one were to conclude that the simple initation of an AD/CVD case amounts US "protectionism," the number of AD/CVD cases in 2009 is well within recent historical norms. According to DOC statistics, the United States has initiated 22 AD or CVD cases against China on 12 products so far in 2009. That might sound like a lot, but consider that in 2008 there were 15 AD/CVD cases against China, and 19 such cases in 2007. (These elevated numbers actually have persisted ever since the "free trade" Bush Administration changed its decades-old policy in 2006 and started applying the CVD law to imports from China and other "non-market economies.")  Sure, you can blame US trade law for producing such numerous and seemingly pre-ordained outcomes, but it was doing that long before President Obama took office.

By contrast, the President's decision to impose prohibitive tariffs on Chinese tires under Section 421 of US trade law was both completely discretionary and the first of its kind.  As such, it warrants intense criticism and serious concern about increased White House protectionism and the future of US trade policy.

With the 421 decision, the White House's failure to engage at the WTO, its shelving of pending FTAs with Colombia, Panama and South Korea, its refusal to resolve te Buy American and Mexican Trucks disputes, and USTR's increased "enforcement efforts," free traders have plenty of bad moves to criticize, and journalists have plenty of troubling signs to report.   But when these well-meaning souls add AD/CVD initiations to the list, they risk undermining their message for those policymakers and readers who understand the difference between "typical" and "extraordinary" US trade policy.  Such a move, therefore, could actually end up hindering the important causes of trade liberalization and US accountability, rather than promoting them.

President Obama’s Accidental War on America’s Exporters

(Ed. note: this op-ed couldn't find a home, so I'm just publishing it here.)

President Obama and his friends in Congress have levied billions of dollars in new taxes to secure passage of their domestic agenda. This you probably already know. But you might not know that the folks paying the taxes are American exporters, that they’ve been doing it for months now, and that US labor unions and foreign governments, not the Treasury Department, are the ones collecting.

Such is the truth behind the President’s accidental war on America’s exporters.

I say “accidental war” because the administration’s public statements, and basic economics, belie overt bellicosity. This summer, the White House announced a new effort to help US exporters by expanding foreign markets, and the President routinely speaks of exports’ critical role in the long-term stability of the US economy. This, of course, is smart policy: with 95 percent of the world’s consumers living outside America’s borders, foreign markets are vital for US farmers, manufacturers and service providers, and developing economies provide fertile ground for the seeds of US business. That American exporters typically pay higher wages than their domestically-focused counterparts is icing on the economic cake.

Yet despite the cheery posturing and its sound reasoning, the White House and congressional Democrats have routinely made choices that end up closing markets, rather than opening them. Such choices result from a basic political decision to secure domestic priorities no matter the price, but all too often American exporters are left footing the bill.

Exhibit A is the President’s mid-September decision to impose, at the request of the United Steelworkers union, prohibitive tariffs on Chinese tires under “Section 421” of US trade law. Contrary to Obama’s excuses, the law gave him absolute discretion to impose the tariffs – discretion he used as a bargaining chip to solidify USW support for his fall health care push. But while the President’s protectionism ensured union adulation, it also resulted in China’s initiation of anti-dumping and anti-subsidy investigations of US chicken and automobile exports. The chicken retaliation – hinted by China weeks before Obama’s decision was announced – now threatens a growing market that purchased $722 million in American poultry last year alone. And while the autos case is small, an affirmative decision could foreclose the Chinese market to US car exports for years.

China also has used the tires decision as an excuse to abandon World Trade Organization negotiations to eliminate tariffs on chemicals and other products - so-called "sectoral agreements" that are part of the Doha Round negotiations on industrial market access. Because these side agreements contain "critical mass" exceptions that prevent them from taking effect unless almost all major exporters participate, China’s rejection essentially ruins the tariff elimination party for everyone else – including many large US exporters like Dow and Dupont that view the sectorals as key to their long-term global competitiveness.

The tires case is not an isolated incident. The Democrats’ refusal to ratify pending bilateral Free Trade Agreements has cost American exporters billions and is rooted in a cowardly decision to avoid “controversy” until health care and cap-and-trade legislation are secured. For example, Commerce Secretary Locke recently confirmed that the administration would not seek congressional passage of the US-Colombia FTA in 2009 because of these domestic priorities. Yet according to Locke’s own Commerce Department, American companies pay about $1.9 million per day in Colombian tariffs they wouldn't owe if the FTA were in force. Given that the agreement was signed in November 2006, this political stalling has resulted in a pointless tax on American exporters of around $2 billion and counting. Trade agreements with South Korea and Panama have been similarly shelved, and considering the US-Korea FTA is the largest since NAFTA, the price of its delay likely dwarfs Colombia’s billions.

Exporters are also under attack because the White House has refused to re-open US roads to Mexican trucks (a direct NAFTA violation) in order to curry favor with the Teamsters. Part of the 2009 Omnibus Appropriations Act, the trucking ban provoked $2.4 billion in additional Mexican tariffs on 89 American products. After signing the legislation with full knowledge of its NAFTA-illegality, President Obama promised the businesses injured by Mexico’s retaliation that his administration would quickly resolve the dispute. Six months later, the Transportation Department has crafted a solution but says the White House is sitting on the fix because it needs Teamster support for ObamaCare. So exporters will keep paying.

From these examples, the result of the White House’s political strategy is clear: American farmers and manufacturers are being forced to pay billions of dollars to foreign governments – and to lose new markets and customers – so President Obama can achieve his domestic policy goals. The President is literally buying off American labor unions with US exporters’ money, and in the process is waging an immoral war on an integral part of the American economy and thousands of innocent workers.

Accidental or not, this war’s damage is very real, and it’s time the President demanded a ceasefire.

Carrots vs. (Chop)Sticks - How to Handle China Trade Issues

Today's headlines provide a simple lesson on how the United States should - and should not - handle bilateral trade conflicts with the People's Republic of China.  First comes the good news, courtesy of Reuters, that the United States and China have negotiated an end to the latter's silly ban on US pork products:

China pledged to lift its ban on U.S. pork on Thursday and the United States took a step toward easing restrictions on chicken imports as the two superpowers agreed to tackle a series of trade irritants.

The flurry of trade accords between China and America comes ahead of President Barack Obama's visit to China in mid-November to reach agreements on currency, the environment and trade with its second-largest trading partner and the largest foreign holder of its government debt.

China's promise on pork sent U.S. hog futures higher on Thursday and also lifted the stock of Smithfield Foods Inc (SFD.N), the largest U.S. hog and pork producer.

"We're going to work through whatever details remain to try to get this done as expeditiously as possible," U.S. Agriculture Secretary Tom Vilsack told Reuters during a telephone interview from Hangzhou, where the countries held trade talks.

China is a top buyer of U.S. meat, chicken, soybeans and other products, purchasing $560 million worth of pork in 2008. China imposed the ban on U.S. pork five months ago following the outbreak of the H1N1 flu virus, also known as swine flu. The disease cannot be caught by eating pork.

China's Agriculture Minister Sun Zhengcai did not say when he would announce a formal end to the pork ban.

"He didn't put a specific timeline on it, but as you know President Obama is coming to China in a couple of weeks, and I don't know whether that is part of their calculation or not," Vilsack said.

China's willingness to lift its pork ban was not related to the recent move by Congress to end its ban on imports of Chinese poultry products, Vilsack said.

"I asked Minister Sun that specific question, and he was very emphatic in indicating that there's no connection," he said.

But Vilsack said his department will soon begin the process to review China's food safety laws and poultry plants with an eye to allowing U.S. imports of poultry meat....

The bilateral agreement came as part of the 20th US-China Joint Commission on Commerce and Trade (JCCT) - a periodic, high-level meeting between the two countries' top trade and commercial officials.  And it's a crystal clear example of what the United States can accomplish when it quietly negotiates with China on basic bilateral trade irritants.  Indeed, according to China's CCTV, a total of 11 agreements were reached during the two-day JCCT summit in Hangzhou.  Another Reuters story points has the details of a few of those agreements:

Importantly for U.S. businesses, China agreed to treat products of U.S.-China joint ventures as local products in government procurement tenders, and would submit a revised offer to join the World Trade Organisation's government procurement agreement by 2010, U.S. Trade Representative Ron Kirk said.

China will remove its local content requirement in tenders for wind power equipment, Zhang Guobao, head of the National Energy Administration, said.

These are also quality agreements (assuming of course, that the Chinese follow through).  Kudos to the participants, including USTR Kirk, Commerce Secretary Locke and Agriculture Secretary Vilsack, for their good work.

Unfortunately, today also provided a stark contrast to the JCCT pleasantries and an equally clear lesson on what happens when US politicians forego quiet diplomacy and start with the chest-thumping.  Here's the AP with the latest:

China has told the U.S. that it will take steps that could lead to higher tariffs on imports of autos made by GM, Chrysler and Ford.

Steve Collins, president of industry trade group the American Automotive Policy Council, said Wednesday that U.S. officials have told the three Detroit automakers that China is expected to begin an investigation under anti-dumping [me: and apparently anti-subsidy] laws into their business practices as soon as next week.

If the investigation concludes that the companies receive government subsidies, or sell products in China at below-market prices, China could slap tariffs on U.S. auto imports.

The move is the latest trade dispute between the two countries, which are already fighting over steel pipes, chicken products, and pirated movies and music. The trade spats worsened after the Obama administration last month announced up to 35 percent duties on Chinese-made tires, to be imposed for the next three years....

GM and Chrysler have received billions of dollars in aid from the government's $700 billion bailout fund, though Ford has not....

Total auto sales in China so far this year have surpassed those in the U.S., giving China a wide lead over the U.S. as the world's top auto market. Through September, 9.66 million vehicles were sold in China, up 34 percent from the same period last year.

During the same time, U.S. sales plunged 27 percent to 7.8 million units, according to Autodata Corp., a research firm.

Sales in China are expected to continue climbing to 12.6 million units in 2009, while analysts say U.S. light vehicle sales for the year will wind up around the 10.5 million level.

As the AP story indicates (and as I've discussed previously), the autos case and a far bigger case against US Chicken parts were filed immediately after the President's decision to impose prohibitive tariffs on US tires under Section 421 of US Trade Law.  Both cases demonstrate how China reacts when US politicians decide to "get tough" and pursue direct, unilateral trade actions against the PRC in order to change Chinese behavior.  (Hint: they don't like it.)

Now, the AP article correctly points out that the Chinese market - while quite important to the future of US automakers - does not import many (only about 9000 in 2009) "Big 3" cars because the American automakers mostly sell their Chinese-made cars in China (a common phenomenon for a lot of allegedly "offshored" US products, by the way).  On the other hand, the autos case could still be important for two reasons: (1) once anti-dumping or countervailing duty (CVD) orders are in place, they tend to stick around for a long, long time, so any resulting tariffs could (if high enough) prevent the Big 3 from shifting business strategies and shipping more US-made cars to China if/when market dynamics change; and (2) the case could lead to "copycat" CVD cases against bigger US exporters that receive government funds (including loans, tax breaks, etc.) if the Chinese investigations find that broad-based government subsidy programs like the TARP, the Stimulus*, or any other major bailout are illegal.  (Indeed, this copycat strategy occurred when the United States reversed its longstanding policy and began conducting CVD investigations of Chinese imports in 2006 - the many subsequent cases routinely targeted the same Chinese subsidy programs alleged in the original case.)  So while small in value, the autos case could have significant implications down the road, as could the Chicken subsidies case.

The pork and autos examples clearly demonstrate that there's a right way and a wrong way to get China to liberalize its markets and obey international trading rules.  The right way is quiet bilateral diplomacy and, where that fails, multilateral dispute settlement at the WTO.  It produces results (and the recent US wins at the WTO are also testament to this fact).  The wrong way is direct unilateral potshots like the Section 421 decision or long-threatened tariffs attacking China's alleged currency manipulation.  That path leads only to Chinese retaliation and further pain for US exporters and consumers.  In other words, it's stupid.

Fortunately, it looks like the Obama Administration might be figuring this dynamic out, albeit slowly and clumsily.  According to another report on the JCCT summit, USTR Kirk suggested that the bilateral summit occur twice a year.  If true, that's a very good sign that US-China trade relations are once again headed in the right direction.