Tuesday, January 26, 2010

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.


Unknown said...

I am curious to know what type of affect you think a review would have on future decisions to implement import relief (as it obviously would have none over the import relief that it is reviewing because it will have already been implemented). Do you think that a post implementation review will serve to influence the political process of future decisions? I guess my question is how does a review thwart the next decision to implement tariffs or quotas? It seems that something more is needed. Transparency is great, but do you see this leading to accountability?

Scott Lincicome said...

More is definitely needed. As Ikenson and I state in our paper, there also needs to be, among other things, (i) conscious re-branding of the US government's free trade messaging from "exports only mercantilism" to explicit acknowldgement of both the value of imports/foreign investment and the moral and economic failings of protectionism; (ii) basic trade policies that don't undermine this narrative and also reflect modern economic realities (e.g., the rapid development of global supply chains); and (iii) intense, top-down advocacy by the President and other key policymakers, including a vocal rebuke of the most common protectionist myths (again, on moral and economic grounds).

But these three things require serious transparency - clear data on and analysis of the effects of current import restraints and of free trade policies - done by an independent government body (groups like Cato, Heritage and AEI do great work, but protectionists will always claim that they're not independent). Without the facts - which seriously don't exist, but for a few disprate studies that are almost unreadable by non-nerds - items (i) thru (iii) are impossible to pull off.

And as public choice theory teaches us, it's the lack of readily available information (and sunlight) that allows the special interests - and their government enablers - the thrive.