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Tired Protectionism

EDITORIAL

Published: September 18, 2009

After President Obama decided to impose a 35 percent tariff on Chinese-made tires, China reacted angrily and predictably: threatening to impose its own tariffs on American auto products and chicken meat. Nationalist bloggers urged China's leaders to strike back even harder and to stop buying United States government debt.

Both governments need to make sure the situation doesn't spin out of control. A trade war would have no real winners and millions of losers in both countries.

China's export-dependent economy would suffer more. It exports almost four-and-a-half times as much to the United States as it imports. If it abruptly stopped buying Treasury debt, it would slash the value of its own, mostly dollar-denominated foreign reserves. But the United States would also lose. American consumers and companies would have to pay more for Chinese goods. And if China were to cut back its purchases of United States government bonds, the Treasury Department would have to raise interest rates, driving up the deficit even further.

An all-out trade war between the world's two largest economies would wreak havoc on the global economy just as it is struggling to come back.

Neither side can claim the high ground. Mr. Obama acted unwisely, invoking a never-before used section of American trade law that allows him to penalize even fair Chinese competition if it results in sharply increased imports and job losses in the United States. China can legally retaliate in car parts and chicken meat, but only if it can prove actual dumping — selling below cost, a much stricter standard.

China has not been competing unfairly on tires — just more effectively, mainly because of its far lower labor costs. As a result, its tire exports to the United States tripled from 2004 to 2008. Four United States tire factories have shut down since 2006, with more to follow.

Armed with these findings, the Obama administration tried to persuade Beijing to restrain its tire exports. After that failed, it acted on its own, announcing the stiff new tariffs. That kind of protectionist remedy may be legal, but it is bad economics and bad foreign policy.

Let's be clear. China has its own very worrisome trade record. It imposes export taxes and other restrictions on domestic supplies of raw materials essential to steel and aluminum manufacturing, giving its own companies an unfair advantage. It refuses to enforce intellectual property agreements. And it maintains its currency at suspiciously low values against the dollar, artificially cheapening the cost of its exports to the United States.

All of these issues should be the focus of serious bilateral discussions. Now that Mr. Obama has invoked the tariff on tires, he has to keep them in place at least through spring. He should start looking now for ways to walk back from the brink. He will meet China's president, Hu Jintao, next week at the Group of 20 economic summit meetings in Pittsburgh. The two leaders need to work together to revive the world economy and constrain the nuclear ambitions of both North Korea and Iran.

Mr. Obama's tariff decision followed strong protests from American tire workers and their union, the United Steelworkers. But the additional duties are unlikely to give them lasting relief. In a globalized economy, raising tariffs cannot long protect uncompetitive businesses. If the price of Chinese-made tires goes up, American companies and businesses will buy tires from other low-cost producers. American tire factories will continue to be phased out, and jobs will continue to disappear.

Like all American workers, these workers can best be helped by regenerating growth at home and abroad. Protectionist remedies, even legal ones like this, impede that growth without providing long-term replacements for vulnerable, trade-threatened jobs.