Because What This Economy Needs Is a Bullet In the Head, We Bring You Trade War With China

Having exhausted efforts to create broad-front inflation, the Obama Administration is now targeting strategic items for direct cost increases. The first thing you'll be paying more for: tires.

Oh, wait, that's the second thing you'll be paying more for. The first was the used car the tires go on. So it all works out. Unless you're poor.

This weekend's Friday night mumble includes a new tariff on circular rim-mounted pressurized mobility-shock-traction devices made in the land of China. Because extruding rubber is the kind of high-tech, high-skill green job we're trying to save and create, the United States has placed a 35 percent tariff on Chinese-made tires. Benefitting from this new protection will be the United Steelworkers union. The Washington Post has more:

"The president sent the message that we expect others to live by the rules, just as we do," Leo W. Gerard, president of the union, said Friday night.

China's government and its tire manufacturers, as well as tire importers and some U.S. tire makers with plants overseas, had strenuously objected to the measure.

"The President decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case," the White House said in a statement released Friday night.

The tire case has been in the works for a while, and there are other things in the pipeline -- including, well, pipeline. Noting that we've already got the Canadians mad at us, Mish Shedlock a few days ago warned against the coming tariff on Chinese-made steel pipe:

One of the biggest risks now to the global economy is a huge round of protectionism. Unfortunately, it's probably only a matter of time before Congress overreacts. That's human nature, Congressional style.

Pray tell, how is charging 21.3% more for steel pipe going to encourage investment? The answer is: it will not. Not a single job will be saved by this ridiculous measure. Instead, China is likely to react by buying more planes from Europe, or wheat from Australia, instead of either from the US. Alternatively, trade just shrinks across the board in other ways.

Earlier this week Nouriel Roubini's RGE Monitor sent an email roundup on the state of international resource protectionism:

Last week's announcement of new rules governing deep-sea oil deposits off the Brazilian coast has reignited debate over resource nationalism. Deposits in the pre-salt layer deep beneath Brazil's seabed are one of the more promising, if expensive, sources of new supply available globally. President Lula unveiled the new rules on what he called an "Independence Day for Brazil." Among other things, they suggest that Petrobras, the publicly traded but state-run oil company, have a majority stake in any new developments of the deep-sea oil...

However, Brazil seems unlikely to mimic some of its Latin American counterparts several of whom have long treated national oil companies as a fiscal cash cow. Mexico's government relies on Pemex for the bulk of its revenue, but production at Mexico's lead oil field, Cantarell, has been falling since the mid-2000s, and restrictions on foreign investment have left Mexico behind in exploration of Gulf of Mexico waters...

Venezuela, the site of a series of nationalizations ranging from banks, to cement, to oil, actually showed signs of a truce with international oil companies after having forced foreign oil companies to take smaller stakes in the Orinoco Valley. However, most of Venezuela's partnerships have been with other state-owned oil companies.

Russia has made changes to its fiscal regime in an effort to lure more investment and exploration in hard to access regions. Russian oil production has been stagnant so far in 2009 after falling in 2008...

Even the United States and Canada have been tweaking their fiscal regimes concerning oil production. In 2008, the Canadian province of Alberta brought in new regulations recalibrating oil sands royalties depending on the oil price.... The United States, for its part, is tweaking its fiscal regime concerning oil producers, as higher taxes on resource extraction are one of the ways that the government hopes to limit the future fiscal deterioration...

Resource control is not limited to oil and energy. Last week, China, the producer of over 90% of the world's rare metals, suggested it might restrict exports of these key inputs for batteries and other new technology. Not only did it suggest reducing export volumes, but its companies have suggested strategic alliances to develop supplies in other countries. Although Chinese officials have backtracked from the proposed cuts, export polices are still a risk.

That's a mixed bag. But while it's difficult to create a chain reaction in nature, it's easy to do it in tariffworld. Just impose a tariff on another party and, as Chinese Ministry of Commerce spokesman Yao Jian indicated immediately after yesterday's announcement, that party will retaliate.

If you're registered in the Facebooks (which I'm going to start calling "Facebook/Livre du Visage" as an olive branch to our good friends and trading partners in the Great White North), you may want to join the group "Freedom to Trade: Say No to Protectionism." The pitch:

Trade restrictions will prolong and deepen the global recession. Yet, seventeen of the G20 countries have recently initiated such measures - in spite of promises to the contrary. India has banned Chinese toys; China has banned imports of Irish pork; the EU has announced new export subsidies for butter, cheese and milk powder; and the US is requiring companies receiving bailout money to "Buy America". In Britain, jingoists and unions call for "British jobs for British workers".

This Free Trade Petition is an initiative of IPN (www.policynetwork.net) and the Atlas Economic Research Foundation (www.atlasnetwork.org).

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • The Captain||

    China's minister of commerce: "Not only does it violate WTO rules, it contravenes commitments the United States government made at the G20 financial summit, and is an abuse of special safeguard provisions ...."

    Robert Gibbs: "We're simply enforcing those rules and we expect the Chinese to understand those rules."


    What we've got here is...failure to communicate.

  • qwerty||

    Few things illustrate the fact that a minority with a strong preference will politically win over a majority with a weak preference than the issue of tariffs. 98% of the population is always worse off, but the politically connected 2% will often win.

    We need a constitutional amendment prohibiting tariffs.

  • Shannon Love||

    I swear, only the fact that I'm writing on computer reminds me that it's not 1930 with Hoover in the White House because Obama and the Democrats seem hell bent on reproducing every single mistake Hoover et al made at the time.

    Dramatically raising government spending AND taxes? Check. . Creating widespread uncertainty that disrupts investment planning? Check. Setting off a trade war in the mold of Smoot-Hawley? Check.

    Looks like I'll to dust off my grandfather's old record of "Happy Days are Here Again!" just set the proper mood. Of course, since Obama is going to destroy the power grid as well, I should probably look for the victrola to play it on.

  • Nipplemancer||

    this is insanity. starting a trade war with the nation that owns more than half of our debt? thanks barry. thanks a fucking lot.

  • Sean W. Malone||

    The consequences of this shit cannot possibly be unknown or unintended... All this nonsense is going to turn me into a conspiracy theorist.

  • Shannon Love||

    Another thought:

    It might help free-market advocates make their case if we could rectify the language to more honestly describe what is going on.

    In this case, we commonly say that the government is, "raising tariffs on Chinese-tires by 'X' percent," which makes it sound like the Chinese will be paying money into our tax coffers. In reality, the Chinese won't pay a dime. Instead Americans who buy tires will pay the tax in the form of higher prices for both Chinese and American made tires.

    The Obama administration just slapped a tax on everyone who buys tires in America. If we could get people to think of it in those honest terms, we might make some headway.

  • Shannon Love||

    Sean W. Malone,

    The consequences of this shit cannot possibly be unknown or unintended... All this nonsense is going to turn me into a conspiracy theorist.

    I wish it was a conspiracy but its just a combination of stupidity and people rationalizing their own naked economic and personal benefit as serving the greater good.

    If you waved enough money under my noise repeatedly I would probably eventually come around to a rationalization of why I really deserved to have that money at someone else's expense.

  • Sean W. Malone||

    You say that Shannon - but with things like this, there is just no excuse.

    I mean, so much of these kinds of policies are indefensible on economic, logical or historical grounds. There's no tariff in the history of the world that has actually effectively changed the behavior of the country who's products it was imposed on. At best, it's a gradual decline in economic activity across the board or at worst, it could be the escalation into severing all productive relationships with other countries entirely (i.e. Cuba).

    China will likely be the former since we both benefit immensely from a trading partnership... BUT... For how long? They basically own us already. If they decide to stop buying the things we actually do still produce, what then?

    No... I've long believed that it's a combination of stupidity and short-term self interest, but there comes a point where the consequences of various policies are simply too clearly understood, well known & obvious for it to just be "unintended". At what point do we conclude that our overlords are beyond criminally stupid and have simply moved on to criminal?

    I say now.

  • monkey on juice||

    So, in an effort to appease Barry's union supporters and save 5000 steelworker jobs, we're going to choke the last bits of life out of our economy.

    Nifty.

  • Jordan||

    The needs of 5000 steelworkers outweigh the needs of 300 million consumers.

  • ||

    The White House, indulging in Economic-illiterate policies? I am shocked, SHOCKED!

  • Paul||

    Why is the president so racist when it comes to the Chinese?

  • Tricky Prickears||

    Is anyone really surprised.

    Obama:
    ...companies that ship jobs overseas....reward companies that keep jobs here...

    Perhaps just shifting tax burdens would suffice, rather than, as Nipplemancer points out, starting a trade war with the nation that owns more than half of our debt.

  • Public School Educated Dumbass||

    "I swear, only the fact that I'm writing on computer reminds me that it's not 1930 with Hoover in the White House because Obama and the Democrats seem hell bent on reproducing every single mistake Hoover et al made at the time."

    But shouldn't libertarians be happy that Obama is taking after that free market ideologue Hoover.

  • ||

    I wonder if the fauxtarian paleocons will have to move over to Obama's camp. After all, aren't they the ones who say "free trade with me, not with thee"?

  • ||

    We need a constitutional amendment prohibiting tariffs.

    It has been done before, but by those damn rebels.

    The opening of Section 8 of the US Constitution...

    The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States...



    The opening of Section 8 of the CS Constitution...

    The Congress shall have power ... To lay and collect taxes, duties, imposts, and excises for revenue, necessary to pay the debts, provide for the common defense, and carry on the Government of the Confederate States; but no bounties shall be granted from the Treasury; nor shall any duties or taxes on importations from foreign nations be laid to promote or foster any branch of industry; and all duties, imposts, and excises shall be uniform throughout the Confederate States...

  • Shannon Love||

    Public School Educated Dumbass,

    But shouldn't libertarians be happy that Obama is taking after that free market ideologue Hoover.

    Yes, well the standard leftist story that Hoover just stood around for three years while the economy tanked until FDR rode in on his white horse is simply a lie.

    Hoover raised government spending significantly with the idea of providing aid and stimulating the economy. Unfortunately, he was also committed absolutely to the idea of a balanced budget no matter what so he raised taxes. In the end, all he did was take money from productive activities and spend it on special-interest of no particular immediate economic benefit. He also signed on to radically raised tariffs. His actions dislocated a large part of the economy and magnified the an ordinary depression into the Great depression.

  • ||

    My new latest conspiracy theory is that the entire crisis is being deliberately orchestrated to cause a global depression, because the powers that be think it's the only way to stop global warming. You know if the entire world economy collapses, it would really bring down carbon emissions dramatically.

    Apparantly, Obama has noticed a few signs of potential recovery and felt the need to squash them before they gained any momentum.

  • ||

    Is Obama an idiot, or is he an evil genius looking to do as much damage to the USA as he can? I really can't tell any more.

    -jcr

  • ||

    I think that since everything's gone halfway to hell already, they're appeasing every special interest they can, figuring that it'll all blend together and people won't notice. And honestly, they're probably somewhat right. Besides, Barry needs to buy every vote he can the way his popularity is going.

  • ||

    His actions dislocated a large part of the economy and magnified the an ordinary depression into the Great depression.

    I'm sure Hoover made it far worse, but I'm not sure that it would have been a run-of-the-mill depression without him. Let's not forget that it came on with the bursting of the biggest inflationary bubble we'd ever had up to that time.

    -jcr

  • qwerty||

    interesting, MikeP: I didn't know that.

  • Tim Cavanaugh||

    I'm sure Hoover made it far worse, but I'm not sure that it would have been a run-of-the-mill depression without him. Let's not forget that it came on with the bursting of the biggest inflationary bubble we'd ever had up to that time.

    Y'know, John Derbyshire turned me into a pro-Coolidgean, and (inauguration then being in March) Hoover had a good seven months to see the bubble starting its final swell.

    Still, if anybody on this thread knows something of the history -- particularly how much influence a prez even had with the federal reserve in those early days -- I'd like to hear some thoughts on Silent Cal's complicity in the credit inflation of the 1920s.

  • ||

    Tim,

    The Fed inflates mostly for the benefit of the banks. The government lets them do it because it also benefits politicians.

    -jcr

  • ||

    I'd like to hear some thoughts on Silent Cal's complicity in the credit inflation of the 1920s.



    Periodic bubbles and panics existed throughout American history before the 20s. There was, perhaps most notable, the Panic of 1893. Then, the Panic of 1907. Most of these panics were sharp, but with fairly quick recovery. These of course were immediately pre-Fed.

    It's difficult for the President (or anyone) to burst a bubble. I don't buy the purely monetary supply-related theories. They don't, for example, explain the Panics of 1893 and 1907.

  • Meh||

    I for one am glad I just bought my new tires 4 days ago. Talk about good timing.

  • ||

    I don't buy the purely monetary supply-related theories. They don't, for example, explain the Panics of 1893 and 1907.

    The fed didn't invent inflation. The Bank of the United States did it, and so did the state-chartered banks, before the Fed. The panics happened whenever a bank wasn't able to redeem its notes for gold.

    -jcr

  • Sean W. Malone||

    jcr is right - many governments & banks have toyed with currency inflation numerous times prior to the Federal Reserve. Obviously most people are aware of this to some degree since most all wars are financed by some sort of monetary printing. The Civil War long predated the Federal Reserve and the First & Second Banks of the United States had ceased to exist, yet both sides paid for much of the war through inflation. Happened time & time again throughout history by whoever runs the printing press. Anyway, not what I originally wanted to bring up.

    Re: "Public School Educated Dumbass"

    "We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic."


    -Herbert Hoover

    No... Herbert Hoover was not an advocate of laissez-faire. His Secretary of the Treasury, Andrew Mellon advocated some more free market policies, but the vast majority of them were roundly ignored and instead we got things like the Smoot-Hawley Tariff. No sir, Hoover was quite the interventionist. He just also managed to wind up being terribly unpopular and then FDR - who campaigned against a lot of Hoover's interventions - managed to capture the history books as savior. Something I'm still perplexed by because he clearly prolonged the depression by about 10 years with his economically illiterate policy.

    On a different note - everyone is aware of the Hoover Dam. I maintain that there's no chance any politician who actually had some free market leanings would publicly fund or tack his name on such a project.

  • BakedPenguin||

    There were some inflationary periods even with the gold standard, although they were either due to debasement (e.g., the Roman emperors creating lead coins with gold overlays) or of limited duration due to sudden influxes of gold (Spain had terrible inflation from all the gold coming over from the New World). In the late 1880's, the cyanide method allowed much lower quality gold ore to be profitable, an influx of gold also created a short inflationary period.

  • ||

    Well, look at the bright side. China might start unloading its treasuries to support its industries, essentially exporting back to the US the inflation it sent overseas during the last two decades, and causing US bond rates to skyrocket. That'll lead to further dumping by other big foreign holders - especially the oil states -who together actually hold much more paper than China - and maybe even Japan will jump on the bandwagon.

    Eventually Americans will get PO'd enough by job losses and decaying bank accounts and international ridicule to elect another Reagan; when that happens, start buying the bonds and retire in style. There's nothing like earning 10-20% interest rates on long-term gov't paper once inflation gets restrained to make life enjoyable.

    (Not saying it's definitely going to happen, but having been there once before I have to say it's a reasonable scenario to consider...)

  • ||

    Seeing as the libs fared so well under FDR and the Great Depression, Obama seems intent on bringing it back!

    He's certainly heard of the Smoot Hawley Tariff Act. This is him attempting to do the same.

  • Frankyb||

    "Facebook/Livre du Visage" as an olive branch to our good friends and trading partners in the Great White North.

    Merci beaucoup, merci beaucoup. But don't you guys still owe a few billions to some of our guys for that wood?

  • economist||

    Change we can all believe in. Dammit I f***ing hate politicians.

  • dillwheed||

    I for one support our command in chief as he treads between over-inflation and sudden deflation by checking the pressure on China and those other outposts of tyre-anny.

  • Gilbert Martin||

    "Well, look at the bright side. China might start unloading its treasuries to support its industries, essentially exporting back to the US the inflation it sent overseas during the last two decades, and causing US bond rates to skyrocket."

    Indeed they might, and that's not all they might be doing. There are plenty of other levers China has to pull to retailiate for Obama's idiocy.

    I read an investment story on MSN Money the other day about certain rare earth metals being crucual componments in the batteries and electric motors of hybrid and electric cars and also on wind power turbines - all technolgies that the Obama administration is rah-rah about pushing.

    Well guess where 85% of the entire world's supply of those rare earth metals comes from?

    That would be China.

  • Gibert Martin||

    Oops - the rare metals issue was already mentioned in the main story.

    I didn't read the whole thing before I posted.

  • monster beat headphone||

    Do you want to hear the attractive music? Do you want to experience the shock which music brings to you? If your answer is

    yes , please be sure to choose monster beat headphone. Monster

    considers all issues, then adopts scratch-resistant smooth mirror design, foldable design, mute button design and so on.

    Because for monster, detail is the quality. In addition, monster can be compatible with iphone so that you can answer the

    call random while appreciate music. Monster only want music not noise. In order to let you listen to music and enjoy life,

    beat by dr dre has powerful active noise reduction technology.

    Besides, Beats by dre can control volume automatically so that

    maintain the consistency of the volume. Monster also own the function which is devil fever wire, this can guarantee to reduce

    sound transmission loss maximumly.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement