Daniel W. Drezner

Debating the tire tariffs [UPDATED]

Debating the tire tariffs [UPDATED]

After the sturm und drang of last week’s decision by the Obama administration to slap tariffs on Chinese tires, I’ve seen a bit of a pushback among the economic commentariat.  This pushback comes in one of two forms: 

  1. This is not a big deal
  2. Obama has his eyes on the larger prize

Over at TNR, Noam Scheiber makes the first case — that this is a tempest in a teapot

With anti-trade sentiment rising in the aftermath of the worst financial crisis since the 1930s, it’s become increasingly difficult to resist genuine protectionism–to say nothing of passing new trade pacts. (Bilateral deals with Colombia, South Korea, and Panama have all stalled out in Congress.) Absent a small gesture on behalf of American workers, it’s safe to say the trade agenda would be doomed for the foreseeable future. (It may be anyway, of course.) Which is why Obama’s decision seemed relatively straightforward once the International Trade Commission ruled that Chinese tires were in fact disruptive. Even so, Obama announced that the tariff would top out at 35 percent, well below the 55 percent recommended by the ITC.

So the tariff is modest, narrow, legal, and designed to preserve the political viability of free trade….

[B]oth Bush and Obama were rhetorically committed to free trade at the time of their tariff flirtations, and both men had taken practical steps to promote it. (Bush had sought fast-track authority from Congress; Obama, in a much tougher political environment for trade, scaled back a "buy American" provision in the stimulus.) So pretty much the only way to divine this difference is by peering into the two men’s souls.  

Hmmm…….. no, not buying the equivalence between Bush and Obama here.  First, to repeat, just because something is legal doesn’t mean it’s good policy. 

Second, as Phil Levy pointed out, the Bush administration specifically declined to apply these tariffs when he was president.  So there is some different between the two administrations’ perspectives on trade.

Third, if Scheiber is correct that this is merely "a small gesture on behalf of American workers," then I’d be fine.  But I’m curious about his faith in that assertion.  All the political signs point to a lot of gestures in the protectionist direction.  Each of them, by themselves, is Lilliputian in their effects — but the cumulative effect can be to keep the Gulliver of freer trade under lock and key. 

The Financial Times’ Alan Beattie makes the more interesting argument — which is that a short term sacrifice of trade policy in favor of health care will sow the seeds of a viable long-term policy of trade liberalization: 

The conventional wisdom in Washington is that this is a straight trade-off. Placate the labour unions on trade and get them to support Mr Obama on healthcare. Whisper it quietly, and be prepared for accusations of heresy to rain down on your head, but that might be a deal worth making….

Instead of hoarsely exhorting the benefits of trade to people who aren’t listening, [trade enthusiasts] need to be seen to soften its downside. Since the American public seems to ascribe much job loss in the US economy to globalisation – usually wrongly, but there we have it – this means reducing the costs of being laid off. Since much healthcare is currently tied to employment, achieving universal coverage would be one of the best ways of doing that….

Mr Obama has now come down on the wrong side of three big decisions on trade: happily signing a stimulus bill with Buy American provisions, abrogating an agreement allowing more Mexican trucks to operate in the US, and now granting the first ever emergency tariffs under a particular “safeguard” measure in US law. All are damaging both to trade and to the US’s international standing. All risk inflaming protectionist sentiment at a sensitive time.

But if he can use his capital to achieve universal healthcare and begin to shift the visceral dislike of trade that has gripped large parts of the American public and their representatives on Capitol Hill, it might prove worth it. He is playing with fire, which has creative but also destructive power. Just like globalisation.

Beattie gets at an interesting proposition — that stronger safety nets will make Americans more comfortable with globalization.  You can certainly point to public opinion polling in support of this hypothesis

It’s a good argument, and it’s the one I suspect Larry Summers and Tim Geithner told themselves after the tire decision was made.  The thing is, I’m not sure whether it’s politically accurate. 

In my debates about trade over the years, I’ve talked with a lot of union activists on the other side of the fence.  These are people dedicated to the protection of them and theirs — and given the economic straits of their workers, I can’t blame them.  I know from talking with them, however, that a stronger social safety net will have zero effect on their trade position.  Sure, they want health care — but they also want to make sure that their union continues to exist as a viable political entity.  Regardless of universal health care coverage, globalization eats away at the unionized employment sector in the United States.  For unions in the 21st century, protectionism is not a policy position to be traded away — it is at the core of their perceived interests.  Health care will not affect that position. 

Am I missing anything? 

UPDATE:  Noam Scheiber responds on TNR’s blog to say that maybe I am missing something

[T]he political context looms incredibly large here. Simply put, it’s incredibly difficult to defend, much less expand, free trade in the middle of a deep recession. And this is the deepest since the 1930s. In that context, the best you can probably do is beat back the worst protectionist excesses and live to fight another day. 

Which is to say, you can’t just make a straight-forward point-by-point comparison between Bush and Obama. The question is, what would a pro-trade president do in the current political context? My point is that it’s far from clear he or she would behave any differently from Obama.

Scheiber is absolutely correct that the curent political environment is hostile to trade — but I’m not all that sure the environment was any less toxic in the early half of this decade.  In December 2001, George W. Bush, flush from the success of the war in Afghanistan, possessing an approval rating above 80 percent and larding out pork like no one’s business, secured the passage of Trade Promotion Authority through the GOP-controlled House of Representatives by a single vote.  In 2005, CAFTA made it through the House by a two-vote margin. 

Let’s face it, however — this debate is about the future.  If Obama abstains from futher acts like the tire tariff, I’ll concede that I’ve overreacted.  If there’s more of this to come, then I think Scheiber will have underreacted.