Section 421 Update: Was It Worth It, Mr. President?

BNA reports that President Obama held a super-secret, unscheduled meeting with the world's labor union leaders, including AFL-CIO big dog Richard Trumka, on the eve of last week's G20 meetings in Pittsburgh.  According to the report, the President received very high marks from the unions; Sharan Burrow, president of the Brussels-based International Trade Union Confederation (ITUC), even went so far as to declare Obama a "champion of working Americans."  How sweet.  Anyway, it's all but certain that tops among the unionists' reasons for giving the First Worker a big, global thumbs-up was his recent decision to impose prohibitive tariffs on Chinese tire imports under Section 421 of US Trade Law.  As I've noted ad nauseam, the United Steelworkers alone brought the tires case, and by imposing the stiff protection, President Obama decided to favor the USW's (and his own) interests over those of American tire producers, retailers and consumers.

Well, over the last week, we've seen three developments that call President Obama's Section 421 decision further into question, regardless of the pre-G20 union lovefest:

(1) Despite Congress' initial efforts last Friday to end the US ban on Chinese chicken imports that began as part of the Obama-signed 2009 Omnibus Appropriations Act, the Chinese Government announced on Sunday that it was formally initiating anti-dumping and anti-subsidy investigations of US imports of chicken parts.  As you'll recall, the chicken case, along with one against US autos, was filed in China as an immediate response to the President's Section 421 decision.  Now that the case has started, it's essentially on "autopilot" (just like American cases) until China announces a final decision about a year from now.  At risk: an expanding foreign market that purchased $722 million in American chicken last year alone - tops in the world.

(2) The Wall Street Journal reported yesterday that tire tariffs' initial domestic effects are starting to be felt.  And just as predicted, American tire dealers, retailers and consumers are getting hammered:

Many dealers fear a drop-off in demand. "People have been putting off the purchase of tires anyway," says Bill Trimarco, the CEO of Hercules Tire & Rubber, a private-label tire supply company in Findlay, Ohio. "When the price of tires goes up, [fewer] tires will be sold."

Still, after getting socked with a $325,000 bill per the new tariff earlier this week, Trimarco says the company was forced to raise prices 10% to 15% on Chinese tires. "This is an anti-small business policy. A company like Goodyear won't get hit, but a lot of small businesses will be hard hit," he says.

Translation: because of the tire tariffs, smaller American tire dealers will eat the huge costs imposed by these new "bills per the tire tariff" that they're already receiving - thus threatening the jobs of the companies' numerous employees (who outnumber the USW's tireworkers by 20-to-1, by the way); or the dealers will pass on those costs to consumers, thus turning the tire tariff into a 10-15% tax on retail tire purchases - a tax that, considering Chinese (and directly-competitive) tires are on the low-end of the market, will predominately harm lower-income Americans.

(3) Reuters reported yesterday that China will not participate in WTO negotiations to eliminate tariffs on chemicals and other key products - so-called "sectoral agreements" that are part of the Doha Round negotiations on Non-Agricultural (Industrial) Market Access.  China's reasoning?  You guessed it, tire tariffs (emphasis mine): "[China's WTO ambassador Sun Zhenyu] linked China's reluctance to cut tariffs further than it has already offered, or participate in sector deals, to trade measures it faces from its partners, such as this month's increase in U.S. tariffs on Chinese tires to block imports."  In other words, China's blaming President Obama's Section 421 decision for its blanket refusal to participate in the sectoral talks.

Regardless of the merits of Sun's reasoning (and they're dubious, at best), it's clear that the tire tariffs have provided an already-reluctant China with the perfect excuse to abandon the sectorals.  China's decision is important because the sectoral agreements contain "critical mass" exceptions which essentially say that no signatory country can benefit from an agreement's tariff elimination commitments unless Members representing at least 90% of all world exports in that sector have signed on to the deal.  And because China's one of the world's largest exporters, its refusal to participate in the sectorals essentially ruins the tariff elimination party for everyone else.  Now, considering that the United States - prodded on by big US exporters who see the sectorals as providing the only real benefit to the Doha Round - has sponsored several sectoral negotiations, the Chinese decision is a real hit that essentially salts critical negotiations to enhance the global competitiveness of many key US exporters like Dow and Dupont.  And what's to blame (fairly or not)?  Yep, Section 421.

So to summarize, we've seen in the last week that Obama's Section 421 decision has resulted in:

• direct retaliation against US exports, a harmful tax on American small businesses and/or low-income consumers, and the perfect excuse for sandbagging critical industrial market access negotiations at the WTO; and

• a host of back-slaps and high-fives from the AFL-CIO and it's unionist allies around the world.

Hmm.  I hope it was worth it, Champ.