No, the President Will Not Extend His Favorite Protectionist Tariffs This Week (Thank Goodness)

A couple weeks ago, I openly asked why, considering how much President Obama just loves the tariffs on Chinese tires that he imposed in 2009 under "Section 421" of US trade law, they were going to expire at the end of this month.  This morning, however, the Huffington Post's Jon Ward had some pretty reasonable-sounding speculation that Obama will, in fact, extend the tariffs before they expire this Wednesday, September 26th:

President Obama plans to travel to Ohio for campaign events on Wednesday, the same day that a three-year tariff on the import of Chinese tires is set to expire.

It's not likely that Obama will let that happen, especially on a day when he is in a major tire manufacturing state, a state that is key to victory in the fall election and where many voters blame China for a long list of economic ills...

On Monday, the Obama campaign again showed its sensitivity to any attacks on the president's record on China and responded immediately with a memo from national spokesman Ben LaBolt, who pointed to the multiple investments by Romney's fund managers in Chinese companies and to the number of trade complaints brought by the administration at the WTO.

But LaBolt also mentioned the tire tariff, calling it "aggressive action against China on behalf of American tire workers."

"When he visits Toledo this week, those tire workers will welcome Romney to remind him that when it mattered most, President Obama stood up for them and he turned his back on them," LaBolt wrote.

The Huffington Post asked LaBolt last week about the tire tariff's pending expiration, but the normally responsive spokesman did not have anything to say about it. A White House spokeswoman on Monday morning also did not return an email requesting comment...

[W]ith the president headed to Ohio and the tire tariff now a gambit in the campaign, as each candidate bills himself as the most committed to "stand up to China," as the Romney campaign puts it, it seems likely that Obama is planning to announce an extension of the tariff at his campaign events in Bowling Green and Kent.

When I read Ward's blog post this morning and then saw this new Obama Campaign ad bragging about the tire tariffs (and bashing Romney's wise opposition to them), I admit that I was pretty concerned that my previous analysis of the legal basis for extending the tire tariffs was wrong.  However, after re-reading that analysis a few times and reassuring myself that the President had absolutely no legal authority to extend the tariffs at this late stage, I then became concerned that the White House was simply preparing to ignore the law's plain text.  (It wouldn't be the first time they've ignored the law on a China-related matter, and what journalist is knowledgeable enough - or willing - to call them on it?)  It turns out, however, that my concerns were misguided.  Shortly after noon today, Ward updated his earlier blog post with the following news from the White House and others:

UPDATE: 12:36 p.m. -- A White House official said Monday that the tire tariff will in fact expire, because the United Steelworkers felt that the provision had had the intended effect.

LaBolt, Obama's campaign spokesman, said in an email that "the President's action achieved its goals of saving 1,000 jobs and protecting American businesses against a surge of Chinese tires."

UPDATE: 1:30 p.m. -- A senior Romney adviser, asked Monday whether the tariff should be allowed to expire or not, did not directly answer....

The tariff's expiration on the day that Obama arrives in Ohio may sound an off-note; but if the tariff's primary beneficiary, USW -- which has not requested an extension, according to the White House -- is on board, criticism of the president is likely to be minimal.

UPDATE: 1:47 p.m. -- United Steelworkers President Leo Gerard said in an emailed statement that the organization informed the administration in March that it would not request an extension of the tariff.

"Since [Obama's] decision, by every measure, success has been achieved: jobs have been retained and created, production has rebounded, investments in plant and equipment have been made and many companies have returned to profitability. That’s why the law was enacted, and it worked," said Gerard.

The USW added that "under an unacceptable, but existing provision of international trade law, compensation for a fourth year of relief might have had to be paid to China."

"We refused to pursue an option that could potentially reward China for their actions," Gerard said.

The Wall Street Journal reported in January, however, that the impact of the tariff was negligible because low cost tires started coming into the U.S. from other foreign countries.

And, of course, the tariffs cost at least $900k/per union job allegedly saved - but hey, that's "mission accomplished" according to Leo Gerard.  Nice work, dude.  Way to go.

But I digress.

So, as I originally reported, it looks like we'll finally be rid of the tire tariffs this week after all.  That's certainly great news for American businesses and consumers, huge protectionist costs notwithstanding.  However, I now am left wondering what President Obama has up his sleeve when he visits Ohio on the day that the tariffs expire.  Another WTO case maybe?  Something else?  Shudder to think.

We'll know soon enough, I guess.

Where's the Love for the President's Signature Trade Enforcement Achievement?

As you may recall, President Obama has repeatedly lauded his 2009 decision to impose prohibitive tariffs on Chinese tires under Section 421 of US trade law as the poster child for his big trade enforcement initiative.  For example, in his 2012 State of the Union Address, Obama bragged about how the duties saved "over a thousand jobs" and were a shining example of how the he stands up for the American worker (or something).  And just last week the President reiterated this theme in his speech to the DNC when he spoke of how his administration "stood up to China on behalf of our workers."

Those super-awesome tire tariffs, however, expire in a few weeks, and, while I'm certainly thrilled to see them go, their expiry leaves me wondering one simple question:

If the President's tire tariffs were as awesome as he says they were, why hasn't anyone - in the industry, unions or the Obama administration - fought to have them extended?

Under US law (19 USC Sec. 2451), any import protection measures imposed under Section 421 will apply "to the extent and for such period as the President considers necessary to prevent or remedy the market disruption."  And President Obama's September 2009 proclamation announcing the tire tariffs established that they would apply for three years from the date they were first imposed (September 26, 2009):

4. Pursuant to section 421(a) of the Trade Act (19 U.S.C. 2451(a)), I have determined to provide import relief with respect to new pneumatic tires, of rubber, from China, of a kind used on motor cars (except racing cars) and on-the-highway light trucks, vans, and sport utility vehicles, provided for in subheadings 4011.10.10, 4011.10.50, 4011.20.10, and 4011.20.50 of the HTS.

5. Such import relief shall take the form of an additional duty on imports of the products described in paragraph 4, imposed for a period of 3 years. For the first year, the additional duty shall be in the amount of 35 percent ad valorem above the column 1 general rate of duty. For the second year, the additional duty shall be in the amount of 30 percent ad valorem above the column 1 general rate of duty, and in the third year, the additional duty shall be in the amount of 25 percent ad valorem above the column 1 general rate of duty.

However, US law also allows any Section 421 measures to be extended upon the request of the affected domestic industry (including the union members who filed the original complaint) or... yes... the President himself:

(o) Extension of action

(1) Upon request of the President, or upon petition on behalf of the industry concerned filed with the Commission not earlier than the date which is 9 months, and not later than the date which is 6 months, before the date any relief provided under subsection (k) of this section is to terminate, the Commission shall investigate to determine whether action under this section continues to be necessary to prevent or remedy market disruption.

(2) The Commission shall publish notice of the commencement of any proceeding under this subsection in the Federal Register and shall, within a reasonable time thereafter, hold a public hearing at which the Commission shall afford interested parties and consumers an opportunity to be present, to present evidence, and to respond to the presentations of other parties and consumers, and otherwise to be heard.

(3) The Commission shall transmit to the President a report on its investigation and determination under this subsection not later than 60 days before the action under subsection (m) of this section is to terminate.

(4) The President, after receiving an affirmative determination from the Commission under paragraph (3), may extend the effective period of any action under this section if the President determines that the action continues to be necessary to prevent or remedy the market disruption.

Yet neither the unions nor the President ever requested that the tire tariffs be extended, and the deadline for a petition (i.e., 6-9 months before September 25, 2012) has clearly passed.  Such silence is pretty surprising when you consider that the Section 421 case is the centerpiece of an Obama administration trade enforcement strategy that has taken center stage during the 2012 presidential campaign.

So what's going on here?  If those tariffs are as great as the President has repeatedly claimed and have saved so many American jobs, wouldn't he have fought tooth-and-nail to prevent them from expiring in a few weeks?  He clearly has the legal authority to do so, and, as we all know, once the duties expire, it's very likely that Chinese exporters will regain much of the market share that they lost to other imports during 2009-2012.  And, let's face it, it's not like the US economy is just humming along these days.  Moreover, the United States doesn't lose its right to impose import protection under Section 421 ("the China-specific safeguard") until  December 2013 (12 years after China acceded to the WTO), so the President could have extended those "job-saving" tariffs for another 15 months (at the very least).

The President's silence is thus quite notable, and perhaps some enterprising journalist can ask him about it the next time that he brags about "standing up to China" on the campaign trail.  Could it be that maybe those tariffs weren't nearly as great as the President has repeatedly claimed, and that several independent reports have shown that they imposed massive harms on the American economy for very, very little gain?  And does the President perhaps want to avoid a very-public spotlight on these inconvenient facts during an election season?

(Yes, all of those questions are sarcastic and rhetorical, but it would nevertheless be wonderful to see someone raise them with the Obama campaign.)

Best Case Scenario: Tire Tariffs Cost $900k Per US Tire "Job" Saved

I've been traveling over the last few days, and am thus a little late to this story, but it's just too good to pass up. As readers of this blog know, I've been a vocal critic of President Obama's 2009 decision to impose  - at the request of the United Steelworkers Union - tariffs on Chinese tires pursuant to Section 421 of US trade law.  The last two-plus years have repeatedly revealed just how warranted that criticism is.  Now, a new study by the Peterson Institute's Gary Hufbauer and Sean Lowry puts a very precise price tag on those tariffs and finds that - at best - they cost a small fortune per US job allegedly saved as a result of their imposition:

In his 2012 State of the Union address, President Obama claimed that "over a thousand Americans are working today because we stopped a surge in Chinese tires."  The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to "play by the rules" and serves as a plank in his larger platform of insourcing jobs to America. However, our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Our analysis also shows that American buyers of car and truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.

Ouch.  AEI's Mark Perry uses the study to provide a simple economics lesson that cannot be repeated enough:

The authors point out "While this figure ($900,000 per job saved) seems extravagant, it is consistent with prior research. Studies repeatedly show that the consumer cost of trade protection typically exceeds, by a wide margin, any reasonable estimate of what a normal jobs program might cost." In other words, it would cost the economy much less overall to not impose the tire tariffs and instead direct compensation towards workers in the tire industry in some other way.

In fact, it would have been cheaper to just idle the 1,200 tire workers and pay them their full salary, of let's say $75,000 per year, than to impose tariffs that cost the economy almost $1 million per worker. This is a good example of why economists don't as a group support trade protection and instead favor free trade: the total costs of protectionism always outweigh the total benefits to the protected industry, resulting in a net loss and making the overall economy worse off, not better off.

Indeed.  Of course, as with any protectionism, the problem is that the USW (via jobs, dues and bragging rights) and President Obama (via union votes and campaign donations) benefited directly from these tire tariffs and got to mask those benefits behind some sweet, sweet China-bashing, so it's unlikely that common sense and the opinions of vast majority of economists - both conservative and liberal - are going to change their minds about the tariffs' "benefits" anytime soon... no matter how much they cost.

But I digress.

The whole Peterson study is worth a read and has garnered some good press and commentary, but the thing that a lot of analysts have missed is that the startling $900,000 figure is actually the very best case scenario because it's very, very likely that the tariffs didn't directly cause even a fraction of those 1,200 new US tiremaking jobs. First, the tariffs were imposed in Fall 2009, just as the United States was clawing its way out of the depths of one of the worst economic crises ever.  As the authors note in footnote 10 of their paper: "Of course it seems likely that the general improvement in economic conditions between the fall of 2009 and the fall of 2011 was responsible for a good part of the rise in tire manufacturing employment."  "Likely" is an understatement.  In fact, if you look at Figure 5 of the study, you can see quite clearly that US tiremaking jobs collapsed (and rose and collapsed and rose again) right in parallel with the US economy, and they were already trending back upward before Obama's glorious tire tariffs took effect:

Clearly, the tariffs weren't some magical launchpad for US tiremaking jobs.

Second, the blocked Chinese tires weren't replaced by US tires (thus spurring more US jobs) but were instead replaced almost entirely by imports from other countries - something that even USTR Ron Kirk predicted would happen back when the tariffs were first imposed.  This wholly expected trade diversion is made clear by Figure 1b in the paper:

Thus, it's extremely likely that President Obama's claim that his tariffs saved (or created) 1,200 American jobs is nonsense, and that the actual number of such jobs far lower.  (And, obviously, it's extremely disingenuous for the President and his team to be taking credit for all those jobs.)  If this conclusion is correct (and, let's face it - it is obviously correct), then the tire tariffs imposed in 2009 cost the American economy (disproportionately lower-income US tire consumers) way, way more than $900,000 per job.

In President Obama's 2012 State of the Union address, he said that the Section 421 tariffs on Chinese tires would serve as the model for his new China Trade Enforcement Team.  At the time, I opined that "Obama's vaunted tire tariffs - literally the centerpiece of his 'new' unfair trade enforcement initiative - have nothing to do with unfair trade and have proven to be an abject failure." Now we know that that failure was really, really expensive. So if we can expect President Obama's China Team - and his second term more broadly - to result in more such "successes," we better start saving our pennies right now.

Documenting the Real - and Personal - Harms Imposed by the Obama Administration's Trade Remedies Policies

Over the last few days, I've tried to document the myriad problems surrounding current Obama administration policies related to trade remedies (i.e., anti-dumping, countervailing duty and safeguards) actions against Chinese imports.  I first explained (in admittedly excruciating detail) how the administration's steadfast support, in the face of numerous adverse legal rulings, for imposing CVDs on imports from "non-market economies" (NMEs) like China and Vietnam was undermining US-China trade relations, injecting uncertainty into the US economy, and creating tons of needless litigation in US courts and at the WTO.  I then criticized President Obama's rather, ahem, audacious claims in the 2012 State of the Union Address that his administration's "Section 421" safeguards tariffs on Chinese passenger vehicle and light-truck tires created lots of American jobs and will therefore serve as the poster child for the President's new trade "enforcement" team.

These blog posts follow years of documenting the problems with US trade laws and the immense-yet-mostly-unseen costs that US trade remedies actions - including the Section 421 tariffs and unrelated countervailing duties on Chinese off-road tires - impose on American businesses (e.g., importers, retailers and downstream manufacturers) that consume, import, market or sell Chinese and other imported goods subject to all of those US duties.  Most of these discussions, however, were been based on public statistics and published news reports, rather than firsthand accounts (mainly because most US business owners are unwilling or unable to comment on the record about such things).

Then last night I received an unsolicited email from Mr. Robert Sherkin, currently President and CEO of Dynamic Tire Corp. and a founder of the now-bankrupt GPX International Tire Corp (the named Plaintiff in the big US court case on the CVD/NME issue).  [Note: I don't represent Mr. Sherkin in any capacity.]  He kindly praised my analysis of the troublesome US trade remedies cases against Chinese tires, and then in a subsequent email explained just how these particular trade actions - which have been repeatedly ruled illegal by US courts and the WTO, yet continue to be championed by the Obama administration - destroyed his company (via the aforementioned bankruptcy), eliminated hundreds of US jobs, and personally cost him millions of dollars.  I asked Mr. Sherkin if I could post his email here, and he agreed.  It is copied below, verbatim (with my clarifications in brackets):

From: Robert Sherkin
Date: Thu, 2 Feb 2012
To: Scott Lincicome
Subject: RE: your post 

[Regarding the AD/CVD investigation of off-the-road (OTR) tires and subsequent CVD/NME litigation in US courts...]

We spent millions fighting this battle for 4 years only to lose the company. The process was Orwellian. You go in thinking that truth would prevail and vindication would be the end result. Boy were we wrong... even now with a US Court telling the government 3 times that they are wrong … they still refuse to accept it.

You can’t possibly calculate both AD and CVD in a non-market economy.  The “surrogate cost” inclusion deals with the CVD aspect!  It is DOUBLE COUNTING.

Has the USA really become that weak that they need to have 6 outs per inning where the other side has 3?  Doesn’t anyone want to do the math or are even the “smart guys” on the Hill only capable of focusing on 20 second sound bites from the talking heads.

We spent over $30 Million on a facility in China, employed over 200 people in North America.

Titan Tire launched an AD claim which was subsequently commandeered by Bridgestone, who by the way was brilliant!  Using their aging 40 year old factory in Bloomington Illinois that they haven’t invested much in over the years, they have effectively blocked China from access to their OTR market in USA ($300+ Million per year) which they fill mostly from their factories in Japan... how smart is that!

Titan on the other hand claimed they couldn’t compete in USA but purchased more USA assets with the goal of attaining 50% of their revenue on an export basis... how can they compete with China outside of USA if they need AD/CVD protection inside USA?  Ridiculous argument but the DOC and ITC lap it up.

[Regarding the Section 421 safeguards duties on fairly-traded Chinese consumer tires...] 

The latest one we are currently suffering with is the 421 ruling on consumer tires... what I call Obama’s $6 Billion Tax on the US consumer... not one new job was created as a result despite the state of the union lie!  This 421 ruling will have had the effect of increasing the cost of automotive tires to the US consumer by not less than $6 Billion over the 3 years [that it will be imposed]… and imports during the last 2 ½ years have not reduced, they only shifted from China to Taiwan, Malaysia, Thailand, Korea and others.  The USW (not one industry participant) claimed that the 421 “relief” was needed to address market disruption caused by the surge of tires imported from China.

So the US consumer pays the price for the USW to the thump their chest, to the tune of $6 Billion.  Priceless!  Something tells me that there are a lot of better ways to spend this amount of funds!

Sorry for my rant….. I feel a little better now! --- getting kicked in the teeth by the US Government for over $20MM personally gets one a little agitated sometimes!

I don't know about you, but there seem to be plenty of reasons for Mr. Sherkin to get "a little agitated" about (and no reason for him to apologize for) how he, his company and its employees were treated by the Obama administration and its strong commitment to maintaining the problematic status quo on US trade regulations.

The loss of a small business, 200 jobs and $20 million can certainly cause a guy to get a little ranty.

In a great new video, Senator Jim DeMint (R-SC) explains how US regulations are destroying American entrepreneurs' ability to compete and succeed in the global economy.  As I (and others) have frequently noted, US trade remedies laws - and the litigation arising therefrom - are precisely the types regulations that can, if poorly crafted or administered, strangle American businesses - particularly those that consume or otherwise rely on imports.  Unfortunately, many politicians - even supposed champions of the free market - seem to forget that US "unfair trade" regulations can impose very real costs on many American businesses (US tariffs are paid by Americans, afterall) and often on very "unfair" terms.  Maybe Mr. Sherkin's story will help them remember (or discover) that fact.

And if more of this is the future of the Obama administration's China trade policy, then heaven help us.

Classic: Poster Child for President's SOTU "Trade Enforcement Team" Is an Abject Failure

I've already spent too much time writing about the stale trade ideas in President Obama's 2012 State of the Union, but one of the President's many comments on trade - reminded to me by Cato's indomitable Sallie James - deserves more pointed criticism (emphasis mine):

I will go anywhere in the world to open new markets for American products. And I will not stand by when our competitors don’t play by the rules. We’ve brought trade cases against China at nearly twice the rate as the last administration –- and it’s made a difference. Over a thousand Americans are working today because we stopped a surge in Chinese tires.

The President's aforementioned job-creation boast relates to his 2009 decision to impose prohibitive tariffs on Chinese tires under "Section 421" of US trade law.  One aspect of that boast is true - Obama's tariffs did cause a dramatic decline in surging Chinese tire imports (as prohibitive tariffs tend to do).  However, another aspect of the President's statement is shamefully misleading: those tire tariffs had absolutely nothing with China's "not playing by the rules" because Section 421 addresses surges of fairly-traded Chinese imports.  I actually corrected this fallacy when the administration first started pushing it after the tariffs were imposed:

Section 421 has nothing to do with "unfair" trade. It's only a determination of whether (i) the subject imports have "surged" and (ii) that surge has injured (i.e., created a "market disruption" for) US producers of like products.  Here's the ITC's own summary of China safeguards under Section 421:

Under section 421 of the Trade Act of 1974, the Commission determines whether imports of a product from China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. If the Commission makes an affirmative determination, it proposes a remedy. The Commission sends its report to the President and the U.S. Trade Representative. The President makes the final remedy decision. (For further information, see section 421, Trade Act of 1974, 19 U.S.C. 2451.)

Please note the conspicuous absence of a word about "unfair trade" or "violations of US law." That's because, unlike antidumping or countervailing duty investigations, China-specific safeguards do not address or remedy unfair trading practices. So technically, China has done nothing "wrong" here other than to sell lots of tires - that Americans obviously want and benefit from - in the United States. Oh, the humanity! (Full text of Section 421 is here if you're interested.)

Despite my repeated clarifications, the President and his team are still relying on this "unfair trade" fallacy when they speak of the tires case (gee, it's as if they don't read my blog or something).  Of course, if they did honestly mention that their vaunted tires case was about simply preventing US consumers from purchasing fairly-traded Chinese tires, then the President's awesome "new" enforcement team might not sound so awesome... especially considering the many real problems with the President's Section 421 decision.

I recently noted some of those problems following the release of a new report by the US-China Business Council which examined the first two years of the Section 421 decision and found that, while Chinese tires did decrease dramatically, they were replaced by other imports rather than increased US production:

The [USCBC] paper goes on to show that, according to US government data, "[t]he biggest beneficiaries of the tariffs are probably tire producers in Korea, Thailand, Indonesia, Mexico and other countries that replaced supply from China."  Of course, anyone who understands trade diversion could have predicted this outcome (and a lot of us did - including US Trade Representative Ron Kirk who hilariously told a Brazilian delegation that they should welcome the President's decision because they'll export more tires to the US).  Unless US manufacturers are the second-most competitive producer of widgets on the planet, tariffs on imports from the #1 widget producer will almost always result in an increase in imports from other countries' widget producers, not from the US producers.  This is not just basic economics, it's also common sense - very well-documented common sense. 

The only thing not mentioned in the new USCBC report is another commonsense outcome of protectionist tariffs - pain for American consumers in the form of higher prices.  In the case of tires, I've cited anecdotal evidence of such price increases, and a previous USCBC report documented significant price increases in the 10-month wake of President Obama's decision.  It'd be good to see more such analysis in the future.  And, of course, there's that sweet Chinese retaliation against US exporters in direct response to the Section 421 announcement.

The Wall Street Journal recently followed-up on my blog post with more distressing facts about the President's tire tariffs.  Most notably, they found (i) further evidence that Obama's decision caused trade diversion abroad and sky-high tire prices at home and (ii) very little evidence that it created a "thousand" jobs like he boldly alleged in Tuesday's State of the Union Address:

The [Section 421] measure was meant to whack imports of passenger and light-truck tires and give a boost to manufacturers and job creation in the U.S.

Yet, for a variety of reasons, it has apparently done little of either—and has surely raised prices for consumers.

"So far as saving American jobs, it just isn't working," says Roy Littlefield of the Tire Industry Association, which has 6,000 members. "And it really hurt a lot of people in the industry—smaller businesses that geared up to bring these tires in from China."...

Mr. Everett, the tire shop owner, says prices jumped not just for China-made tires but for tires made in the U.S., too. Wholesalers, he said, used the cover of the tariff to raise prices across the board. Bob Ulrich, editor of Modern Tire Dealer, a trade publication, says prices are up 29% in the replacement market since 2009. Large increases in shipping and raw-material costs have contributed to the rise, as has recovering consumer demand in the U.S....

Some companies have indeed added production and employees, but whether that is a result of the tariff or the recovery in the U.S. economy isn't entirely clear.

Yes, it isn't "clear" because such results would defy all available evidence and, you know, the laws of basic economics.  As the WSJ article notes (and as I've repeatedly explained), low-end Chinese tires simply don't compete with high-end US tires, and the tariffs simply caused Chinese tires to be replaced by other imports.

So there you have it, folks: Obama's vaunted tire tariffs - literally the centerpiece of his "new" unfair trade enforcement initiative - have nothing to do with unfair trade and have proven to be an abject failure.

So if that's the best he can do...

UPDATE: Heritage's Bryan Riley beat me to the punch on this one and comes to a similar conclusion: "In his State of the Union Address, President Obama followed up his tire tariff story by calling for a brand new federal bureaucracy to investigate unfair foreign trade practices. In fact, the tire tariff is a cautionary tale that should remind policymakers that to the greatest extent possible, the determination of whether a particular transaction is fair or unfair should be made by the people spending the money, not by officials in Washington, D.C." 

Meet the New Year, Same As the Old Year

One of the big trade developments of 2011 was the continuing tit-for-tat protectionist battle (I refuse to say "trade war") between the United States and China via national trade remedies laws and WTO dispute settlement.  Particularly contentious were disputes over allegedly-subsidized "green" technology products, China's apparent retaliation to unilateral US trade actions via its own trade remedies laws, and the United States' simultaneous application of its CVD law to China (and Vietnam), while treating them as as "non-market economies" in anti-dumping investigations - something that both the WTO's Appellate Body and the US Courts have found to be illegal.  These three issues resulted in a year of a lot of litigation and ultimately a lot of duties against US and Chinese imports in (much to consumers' and exporters' dismay, natch).

And if December is any indication, 2012 will likely see more of the same.  Maybe a lot more.

In the middle of last month, China's Ministry of Commerce (MOFCOM) announced that it was imposing anti-dumping and countervailing duties on US imports of large automobiles and SUVs - the result, as you may recall, of an investigation initiated in response to the Obama administration's 2009 decision to impose duties on Chinese tires under "Section 421" of US trade law.  As the FT neatly explains, MOFCOM's announcement is part of a growing trend of Chinese "retaliation" against the US and other countries via national trade remedies laws - something that Chinese law uniquely allows:

In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.

In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres....

The move is however the latest in a flurry of legal actions between the US and China, in which each country accused the other of supporting domestic industry with illicit state subsidies and challenged each other’s use of emergency blocks on imports.

Last week the US said it was taking a case against China to the World Trade Organisation, arguing that Beijing’s use of anti-dumping measures against US poultry exports was illegal under global trade rules. Washington also has a similar WTO case pending against China for blocking steel imports from the US. “We are very disappointed in this action by China,” said Andrea Mead, a spokesperson for the US trade representative’s office.

China started the process of imposing anti-dumping duties on American poultry and cars in 2009, shortly after the US for the first time used a special measure to block imports of tyres from China. Beijing subsequently challenged the US’s action to block tyre imports at the WTO, but lost the case after a judicial panel ruled that Washington had acted correctly within the law.

As I told the FT in that same article, because Chinese law does not require MOFCOM to announce the receipt of a trade remedies petition from its domestic industry or to decide whether to initiate an investigation within a specified timeframe, “China can quickly initiate ‘surprise’ investigations in response to unilateral trade actions by the United States and other trading partners that it doesn’t like.”  Moreover, Chinese law doesn't require MOFCOM to immediately impose duties upon reaching final determinations in AD/CVD investigations that subject imports are dumped/subsidized in the Chinese market and injuring the domestic industry.  Both aspects are different from US law, and the latter provision allows the Chinese government to announce final AD/CVD duties without actually imposing them.  Thus, the un-imposed duties can act as a "threat" of sorts hanging over the head of US and other exporters (and, of course, the US government).  This delay happened in the automobiles case.  The final measures were announced in May 2011 but not imposed until mid-December - the week after MOFCOM blasted a unanimous decision by the US International Trade Commission to continue a highly controversial AD/CVD investigation of Chinese solar panels.  This little coincidence has led some to speculate - with some justification, it seems - that China finally decided to impose the automobile duties as a response to the ITC's decision. (I, however, have no idea if that's really the case.)

Based on USTR Ron Kirk's rather disgruntled response to MOFCOM's announcement, it's quite possible that the US will also challenge the automobile duties at the WTO - the third such dispute (as the FT notes).  So this bilateral fracas should continue to work itself out throughout 2012 - the only question, really, is whether China will initiate any more AD/CVD investigations against US imports in 2012 or impose new duties on those products as a result. (My guess: probably yes, but it could depend on future US antagonism.)

Of course, the United States isn't only on the receiving end of questionable trade remedies actions - something that the aforementioned WTO and court cases make clear.  In fact, last Thursday, the US wind industry filed anti-dumping and countervailing duty petitions against imports of wind towers from China and Vietnam - both still considered "non-market economies" under US anti-dumping law.  Bloomberg reports on the petitions:

Wind-tower producers from China and Vietnam are selling their renewable-energy equipment below cost in the U.S., according to an attorney for American producers that petitioned the U.S. to impose anti-dumping duties...

The wind-tower complaint was filed by Broadwind Energy Inc. (BWEN); Otter Tail Corp. (OTTR)’s DMI Industries; a unit of Trinity Industries Inc.; and Katana Summit, Price, who is based in Washington, said in an interview.

The wind-tower companies also filed a countervailing-duty complaint against China. The U.S. uses more than 300 anti- dumping and countervailing duty orders to shield American-made goods, from honey to bedroom furniture, against global competition it deems unfair and damaging to U.S. companies. About half the orders target iron and steel products. Anti-dumping duties apply to goods sold overseas at or below the price in the home country. Towers from China sell at 64 percent of their normal value and those from Vietnam at 59 percent, according to the petition by the U.S. companies....

China accounts for a third of all U.S. actions on imports, the most of any country, including about 100 anti-dumping and more than two dozen countervailing duty orders, according to the U.S. trade commission....

Bloomberg's article also helpfully notes that the wind tower petitions are part of a growing trend of trade disputes - including the aforementioned solar panels investigations - between the US and China over "green" products. The wind towers case thus adds to rapidly expanding volume of green trade disputes around the world - something I've repeatedly noted (and predicted) over the last couple years.

Bloomberg fails to mention, however, the huge mess that is the current legal status of the US CVD law with respect to the NMEs China and Vietnam.  For both of our sakes, I won't again get into those weeds tonight, but recent events in US courts and the WTO will likely cast a rather conspicuous shadow over DOC's initiation of this investigation (although I have no doubt that DOC will act as if nothing's going on).  And, considering China's rather loud response to the latest court decision ruling CVDs on Chinese imports illegal,  further litigation over all of these investigations is extremely likely in 2012.

So to recap: last year we saw both the US and China engage in questionable trade remedies actions against the other's imports and then challenge those actions at the WTO (and, in China's case, in US courts).  We're only two days into 2012, and it looks like this year will follow a very similar storyline.

Stay tuned.

(And Happy New Year!)

Obama's Tire Tariffs: A Very Valuable Failure

A few months after President Obama's 2009 decision to impose steep tariffs on Chinese tires under Section 421 of US trade law, I noted that it was looking to be an abject failure in terms of its core (and only) objective: helping the US tire industry and its workers.  Well, it's now been two years, and a (relatively) new report from the US-China Business Council (h/t Andy Roth) proves unequivocally that my initial impressions were dead-on:

Two years ago, the Obama administration imposed punitive tariffs on imported low-end tires from China. The objective was to protect and restore low-end tire manufacturing jobs in the United States. But do trade tariffs create jobs? Were tariffs the right or wrong remedy?

The answer: Probably the wrong remedy. US imports of the low-end tires involved in the case have actually increased substantially since the tariffs were imposed—but have shifted from China to other countries. And, there is no objective evidence that the tariff boosted US tire manufacturing jobs.

The paper goes on to show that, according to US government data, "[t]he biggest beneficiaries of the tariffs are probably tire producers in Korea, Thailand, Indonesia, Mexico and other countries that replaced supply from China."  Of course, anyone who understands trade diversion could have predicted this outcome (and a lot of us did - including US Trade Representative Ron Kirk who hilariously told a Brazilian delegation that they should welcome the President's decision because they'll export more tires to the US).  Unless US manufacturers are the second-most competitive producer of widgets on the planet, tariffs on imports from the #1 widget producer will almost always result in an increase in imports from other countries' widget producers, not from the US producers.  This is not just basic economics, it's also common sense - very well-documented common sense.

The only thing not mentioned in the new USCBC report is another commonsense outcome of protectionist tariffs - pain for American consumers in the form of higher prices.  In the case of tires, I've cited anecdotal evidence of such price increases, and a previous USCBC report documented significant price increases in the 10-month wake of President Obama's decision.  It'd be good to see more such analysis in the future.  And, of course, there's that sweet Chinese retaliation against US exporters in direct response to the Section 421 announcement.

Now, while the President's tire tariffs have proven to be an abject failure, they still provide us with an extremely visible and valuable lesson about anti-China protectionism: it inevitably produces higher prices for US consumers and retaliation against US exporters yet rarely helps US manufacturers and workers - something to think about when you hear campaigning politicians in both parties peddling China protectionism as some sort of magical solution to the United States' current economic woes.

It just doesn't work like that, and they should know better by now.

Weekend Quick Hits

Apologies for the light blogging this week - it's been a brutally long one for your humble correspondent.  But here's a treasure-trove of headlines to make up for my absence:

• Alternate headline: Former USTR Portman Joins Gaggle of Protectionist Senators to Ask Current USTR Kirk to Pursue Silly Protectionist Policy that USTR Can't Actually Achieve. (Silly letter available here.)

• Must-read WSJ analysis: Blather in Washington won't affect the US-China exchange rate; Chinese inflation will.  (Yes, this should sound very familiar.)

• In case you missed it, AEI's Claud Barfield ably responds to my blog post on the United States' sordid history of "FTA bullying."  His future analysis on this issue promises to be great.

• Forbes analysis: US corporations pay a LOT of taxes, especially those dastardly oil companies!

• Shocker: "Both the European and global carbon markets could significantly increase costs for EU steelmakers, while at the same time reducing the potential for offsetting those costs, speakers at Steel Business Briefing’s Green Steel Strategies conference in Brussels argued.  European Union Allowance (EUA) prices are expected to rise to around €40/tonne by 2020, according to forecasts presented by Carine Hemery of carbon market analysts Orbeo. Moreover, the amount by which steelmakers can cut their costs by offsetting with UN carbon credits, called Certified Emissions Reductions (CERs), could fall from around €3-4/t currently to just €1-2/t in 2013-2020, she adds."  Me: Is lobbying for carbon tariffs soon to follow?

• Vladimir Putin puts on a clinic on "How Not to Improve Your Country's Chances of Getting Into the WTO Anytime Soon."

• According to a new report by sympathetic environmentalists, governments and industries are lying to us about the efficacy of wind power generation.  I'm shocked!

• Cato's Dan Griswold deflates the silly White House rhetoric that we're "on track" to double US exports in the next 5 years.

• WorldTradeLaw.net's Simon Lester has an insightful blog post about the "dangers of talking about competitiveness" in the context of international trade rules (and disputes).  I agree.

• China's commerce ministry (MOFCOM) announced preliminary anti-dumping and countervailing duty rates for sedans and SUVs from the United States.  As you'll recall, this case started back in 2009 as a not-so-subtle response by the Chinese government to the President's decision to impose safeguards duties on Chinese tires under Section 421 of US trade law.  Final rates in the China AD/CVD case will be out in a few months.

• US-China business Council released state-by-state data on US exports to China between 2000 and 2010.  The results are pretty staggering.  For example, exports to China from my home state of North Carolina - a place that's unfortunately (and irrationally) represented by many a protectionist politician - increased over 500% since 2000 and now stand at over $2.2 billion. 

• Arnold Kling discusses a new paper on trade and US employment trends that's (rightfully) getting a lot of buzz.  Tyler Cowen has more praise and discussion here.

• The 2011 Name of the Year bracket is out, and it is as awesome as ever.

• Finally, ReasonTV follows my lead but enlists the far-more-persuasive Sallie James to implode Bernie Sanders' insane war on the imported trinkets that are were sold at the Smithsonian giftshops:

Here Comes the Chinese Retaliation?

Over the last few weeks, I've cautioned that America's absurd ethanol policies and the new US WTO complaint against Chinese "green subsidies" (which arose from the United Steelworkers' Section 301 petition) could spark new trade disputes targeting US exports.  Today comes news that China might be getting the ol' retaliation ball rolling with an anti-dumping investigation that fits both of my criteria perfectly (emphasis mine):

China, the world’s biggest grains user, has started an anti-dumping investigation into U.S. shipments of dried distillers’ grains, an animal feed ingredient, adding to tensions in ongoing trade disputes.

The government will probe for unfair trade practices on products imported in the year ended June 30 after receiving complaints from four domestic ethanol producers, the Ministry of Commerce said on its website today. Distillers’ grains, commonly known as DDGS, is a by-product from making corn-based ethanol.

The probe is likely to further strain commercial ties with the U.S. a month before President Hu Jintao is scheduled to visit Washington. China’s surging livestock production has spurred imports of animal feed ingredients including corn, soybeans and DDGS.

“This case against U.S. DDGS probably isn’t an isolated incident and must be observed in the context of the two sides’ trade relations,” Li Qiang, managing director at Shanghai JC, said by phone. “The investigation outcome may not support the charge because prices of imported DDGS have been higher, so it’ll be difficult to establish damages based on price,”

Imports of DDGS may jump nearly fivefold to over 3 million metric tons this year, according to Li. Still, the probe “may not have significant impact beyond the initial concern.”...

The investigation comes after the U.S. last week filed a complaint at the World Trade Organization against China over support for its wind-energy manufacturers. A government fund for wind manufacturers requires recipients to use domestically made parts, violating WTO rules, the U.S. Trade Representative’s office said. China responded by saying its policies were in line with the regulations.

Last month China said it would extend an anti-dumping probe on U.S. sports utility vehicles and large sedans and in October it said it would consider appealing a WTO decision to reject the bulk of its complaints against U.S. duties on imports of steel pipes....

The ministry will begin the investigation today and will likely conclude the probe within a year, the ministry’s statement said. The probe may be extended under exceptional circumstances to June 2012, it said.

Yes, this new investigation could just be a big coincidence.  Then again, the last time that the United States announced that it was targeting China in response to a USW petition under an arcane provision of US trade law (Section 421), the Chinese immediately responded with two new anti-dumping (and countervailing duty) investigations of US chicken and automobile exports.  And with US ethanol tariffs and subsidies angering producers around the world, it's no surprise at all that China's Ministry of Commerce (MOFCOM) had this petition the Chinese industry sitting around. (Unlike the more transparent US system, AD/CVD petitions are submitted confidentially in China, and MOFCOM has complete discretion re: whether and when to initiate an investigation.)  So you can draw your own conclusions as to whether this qualifies as "retaliation," or whether it's just a long-overdue Chinese response to bad US behavior on ethanol.  Either way, it's not good for US exporters of DDGS.

And speaking of naughty US ethanol policies, I must admit that I didn't foresee the DDGS case itself and instead was warning about potential countervailing duty investigations of subsidized US ethanol.  But the Chinese DDGS anti-dumping case is hardly surprising because, while it wasn't the direct result of US ethanol tariffs and subsidies, it's almost certainly the indirect result of these policies, as they inevitably increase domestic production (and thus lower prices) of the ethanol byproduct DDGS.  So while other DDGS cases could be on the way, we still could also see new investigations targeting US exports of the subsidized ethanol itself.  We shall see.

One last trade-lawyerly point: I'm not exactly sure what Li Qiang means when he/she says that the case might not result in anti-dumping duties against US exports because DDGS import prices are higher than domestic prices.  This could be a legitimate point if we're talking about proving that US DDGS imports materially injured the Chinese injury, but injury cases are very complex, and simple average unit value (AUV) comparisons are a pretty poor indicator of a "material injury" determination (and those import volume increases provide strong support for an injury finding).  On the other hand, Li is mistaken if he/she thinks an affirmative dumping finding will be difficult in this case because DDGS import prices are higher than domestic prices.  (Recall that the imposition of anti-dumping duties requires affirmative findings of both dumping and injury.)  Dumping occurs when import prices are lower than prices in the home (US) market or cost-of-production (aka "Normal Value"), so domestic (Chinese) prices are inapposite.  Li probably means the former scenario, but it's impossible to tell.  Chalk it up to shoddy reporting, I guess.

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

Sunday Quick Hits

I'm just back from some business travel, and there's lots to mention, so let's get right to it:

• Ten months of Section 421 tariffs on Chinese tires produce nothing except higher domestic prices and increased imports from other countries.

• New Cato briefer: The Miscellaneous Tariff Bill: A Blueprint for Future Trade Expansion.

• New Heritage briefer: Targeting the Yuan: A Feel-Good but Futile Response.

• Op-ed: Why imports are a boon for the US economy (and another reason why Keynesianism is dumb).

• In response to Krugman's latest China currency column, monetary economist rightly asks if we can revoke PK's Nobel prize.

• Boeing-Airbus dispute: the EU strikes back.

• WSJ editorial board asks an obviously rhetorical question: does Obama or the USW run US trade policy?

• Yet another trade dispute over "green" subsidies: this time Japan goes after Canada's "feed-in tariffs" for renewable energy generation.  You were warned, people.  You were warned.

• Shocker: Dems' anti-china push is based on politics, not economics.

• Excellent NYT op-ed on how visa reform is critical to the future of US global competitiveness.  Me: something China is already doing, by the way.

• Journalist notices that US pols attack China's currency policies to "save American jobs," but they don't seem to care about those same jobs when they block Chinese investment in the United States.

• Breakthrough?  Iowa farmers starting to balk at taking government money.

That should keep you all busy for a while.

PC4D: Lee Fisher Blames Rob Portman (and US Trade Policies) for Ohio Job Losses, DMV Lines and Cancer

According to the Cleveland Plain Dealer, the Democrat Party and its Ohio Senate candidate Lee Fisher are going after his competition, Republican Rob Portman, for being a good United States Trade Representative and applying US law correctly:

Ohio Democrats who say that free trade has cost good-paying factory jobs are about to get personal, and their target is a clean-cut Cincinnati attorney named Rob Portman.

He's the Republican U.S. Senate candidate in the race to succeed George Voinovich, and he represents a rare opportunity for Democrats who blame factory closings on GOP trade practices. Portman, 54, has a record -- not just of votes from his days in Congress, but also of decisions made when he was trade ambassador in President George W. Bush's White House in 2005 and 2006.

There's no need for a faceless bogeyman or amorphous "they" in this year's Senate race when opponents say that "they" took our jobs.

"Congressman Portman supported Chinese government-backed steel companies over Ohio workers," says John Collins, spokesman for Democratic U.S. Senate candidate Lee Fisher. Fisher is currently Ohio's lieutenant governor. "Simply put," Collins says, "if you want to see the jobs Congressman Portman created after spending 20 years in Washington, you'd have to go to China."

Yet a Plain Dealer examination of trade cases and practices, including key cases that Democrats have also pored over, shows the rap against Portman is as political as it is substantive. Still, Portman faces a challenge making his case, because the issue of trade and lost jobs is nuanced and emotional, especially in a state where everyone knows someone who's out of work.

The Plain Dealer goes on to do a very good job explaining how the Dems' specific claim - about Chinese pipe imports - against Portman is complete and utter garbage.  Basically, Fisher's team and other Democrats are utilizing a classic protectionist myth that all imports are unfairly traded (on behalf of dirty rotten cheaters and the horrible tycoons who love them, of course).  In this case, the protectionists conflate two separate Chinese pipe cases:

• A 2005 case on circular welded non-alloy steel pipe under Section 421 of US Trade Law, which has nothing to do with "unfair trade" or "predatory pricing" and requires Presidential consideration of the overall "national economic interest"; and
• A series of 2008-2009 cases on other types of pipe under the US Antidumping and Countervailing Duty (CVD) Laws, which (at least theoretically) do.  

(For background on Section 421 and how it differs from "unfair trade" cases, go here.)  Portman, of course, was only USTR in 2005 and 2006, so to claim, as the Dems do, that "Bush's refusal to stop China's predatory and protectionist trade practices, based on the advice of his trade representative, helped China at the expense of jobs here in the U.S." is total rubbish.  And when called on their bluff by the Plain Dealer, the Dems' response is unsurprisingly inane:  "Is it a different pipe? Yes, it's a different pipe....  But the market fundamentals are the same."

This response, of course, is jibberish.  USTR Portman allegedly advised the President that it was not in the national economic interest to impose special, never-before-used safeguards on fairly-traded imports of Chinese pipe that were found to cause "market disruption" in the United States.  Then, three years later and after Portman was long gone, the independent International Trade Commission and Department of Commerce (unrelated to Portman's USTR) determined that imports of different kinds of steel pipe were unfairly priced/subsidized and materially injuring the domestic pipe industry.  So Portman's decision re: Section 421 had nothing to do with enabling "predatory protectionists" or "unfair trade" and everything to do with making a legally-bound determination about the impact of unprecedented pipe protectionism on the overall economic interest of the United States.  Indeed, for Portman to have decided in favor of the domestic pipe producers (one of whom is French owned, natch) and their unions just because he was from Ohio would have shown him to be a disingenuous political panderer.

And speaking of biased political pandering, that brings us to another one of the Fisher team's panderiffic statements from the Plain Dealer article:

"Ohio voters will be troubled to learn that Congressman Portman spent 20 years in Washington supporting trade policies that shipped Ohio jobs overseas and allowed cheap Chinese goods to undermine our manufacturers.," Collins, Fisher's spokesman, says.

Ahh, yes, the protectionist myth about American manufacturing decline.  Let's see, Portman was USTR from 2005 and 2006, and as I've mentioned repeatedly, the US manufacturing sector actually thrived during those years (and in 2007):

[T]all tales about the demise of US manufacturing are probably the most prevalent, and misguided protectionist myth out there.  First, until the onset of the latest recession, the US manufacturing sector was setting all kinds of performance records.  As noted in my Cato Institute paper last year: "According to nearly every financial statistic that is relevant to evaluating the health of the manufacturing sector, it was unequivocally thriving until the onset of the recent US financial crisis and recession.  In 2006, US manufacturing achieved record highs for output, revenues, profits, investment returns, exports, and imports.... [I]n 2007 new records were set for output, revenues, value added, and exports in the manufacturing sector." (See paper for footnotes, but don't bother: it's all government data.)  During this same period ('06-'07), do you know what else was setting records?  Yep: imports.  Of course, the strong, positive relationship between imports and US manufacturing success makes total sense when you consider that almost 60% of all imports into the United States are capital goods and equipment - things that American manufacturers rely on to produce their globally competitive products (in record amounts).

Oh, and just so we're totally clear, the US manufacturing sector was, and remains, the world's largest: according to the United Nations Industrial Development Organization, US factories are the world’s most productive, accounting for 25 percent of global manufacturing value-added.  By comparison, Chinese factories account for only 10.6 percent. (But don't just take my, or the UN's, word for it: the White House's 2009 "Manufacturing Framework" also made America's manufacturing dominance crystal clear.)

So when Rob Portman was USTR, US manufacturing was absolutely killing it, and we're doing pretty well today too.  Nice work, Ambassador!

But hey, maybe it's just Ohio's jobs that were destroyed by Portman's pernicious trade policies.  Well as the handy chart below makes clear, Ohio's unemployment rate was around 5.5% throughout Portman's tenure and only took a nosedive after Portman left his USTR post and the Great Recession took hold:



I've also shown you Texas' unemployment over the same period because I think it's quite amazing that Ohio and Texas had very similar unemployment rates until just before the recession began.  It was only in 2007 and beyond - particularly after the Fall 2008 crash - that Ohio's unemployment rate goes off the rails and Texas' rate remains relatively low.  What's also interesting about that period, of course, is that global trade dramatically contracted, as did the US trade deficit.  So Ohio's unemployment cratered at the very same time that the US trade deficit was dramatically shrinking, and yet the Ohio Democrats want to blame "free trade" and imports for their problems?

Umm, no.

But let's go back to Texas for a second.  As the employment data above make clear, Texas has absolutely dominated Ohio (and other rust belt states) during the recession.  And as the table below demonstrates, Texas was trading like crazy over the same period.

Texas crushes Ohio in exports and imports in 2008 and 2009, and it's not just a population advantage.  The per capita numbers are almost as stark.  Texas also is running a trade deficit in both 2008 and 2009, so it's not like a massive trade surplus is the reason for Texas' success.  Pretty interesting, huh?

Now, because I'm not a political hack, I'm not going to sit here and claim that it's only because of free trade that Texas has so thoroughly thrashed Ohio over the last 2-3 years.  There are lots of reasons, including tax, labor and trade policies, that have caused Texas' economy to weather the storm better than Ohio's (and that of pretty much every other state in the union).  But at the same time, the trade and employment data above should end, once and for all, the disingenuous political claims that Rob Portman's "free trade" advocacy somehow led to Ohio's demise.  It's just not true, and to allege as much is to shamefully mislead a scared Ohio citizenry that just doesn't know any better.

Section 421 Decision Does Nothing to Change US Consumption of Imported Tires

It's been a while since we last checked in on the debacle that is the President's September 2009 decision to impose prohibitive tariffs on Chinese tire imports under Section 421 of US trade law.  Back then, the only things that the President's decision had caused were skyrocketing domestic tire prices and Chinese retaliation against American chicken and automobile exports.  No new American jobs, no increased domestic production, nada.  (Yet the price pains continue to mount.)  We also had some preliminary import data showing pretty significant "trade diversion" - i.e., the shift in imports from the now-high-tariff China to other, still-low-tariff exporting countries like Brazil, Mexico and Korea.  And, of course, because other imports took up the Chinese slack, those static domestic jobs and production stats were pretty much expected.

Now from the US International Trade Commission comes a little more proof that Section 421 did almost nothing to change US import consumption habits and instead merely shifted Americans' purchases of Chinese tires to other foreign-made tires.  In a recent public report issued as part the ITC's current investigation of whether to expand Thailand's duty-free access to the US tire market under the Generalized System of Preferences (background here), the ITC found that imports accounted for almost the same share of total domestic tire consumption in 2008 (with no Section 421 tariffs) as it did in 2009 (with four months of Section 421 tariffs).  Here's the money-graphic:

As you can see, there was only 1.1 percentage point change in the import-to-consumption ratio between 2008 and 2009, and 2009 was still 4 percentage points higher than 2007.  Maybe the Section 421 decision stopped the rapid acceleration in US import consumption; maybe it didn't.  It's difficult to really say.  But that's certainly not what the White House promised us because they weren't championing Section 421 as a mere band-aid.  It was supposed to "level the playing field for American workers in the tire market."

So much for that, huh?

Friday Quick Hits: Headlines Edition

I have a lot to share, so it's headlines-only today.  Yes, yes, I know: I'm lazy.  But hey, you're still getting your money's worth in this deal.

• Koreans are big drinkers; too bad American wine faces a stupid tariff that exists only because the President is afraid to confront his base re: US-Korea FTA.

• USTR: "The KORUS FTA would be great for the US economy, but we have no timeline because, well, our administration stinks at selling free trade." 

• Japan renews its WTO request to impose almost $250 million in tariffs on US exports because of America's failure to stop zeroing in antidumping reviews.

• The EU fecklessly hid an official document showing that its biofuels policies actually harm the environment.

• AEI's Phil Levy: Europe's stupidity is making a US-China clash over currency more likely.

• WSJ's Sternberg: globalization means that RMB appreciation won't dent the US-China trade balance (via Mark Perry).

• Six reasons to repeal the capital gains tax.

• US Transportation Secretary: "A Mexican Trucking solution is 'very close.'  Yes, I know I said it was 'very near' two months ago, but can you please stop laughing at me?  Oh, come on, stop.  Please?"

• US manufacturing sector grows for the ninth straight month.

• US manufacturing sector added the most jobs in April (44,000) since 1998.

• Could Malaysia join the TPP?

• China preliminarily decides to impose countervailing duties up to 31% on US chicken exports.  No one mentions Section 421.

• The myth that is China's green energy dominance.

Monday Quick Hits

A few noteworthy items for those of you whose brains weren't fried by yesterday's WTO analysis:

• Crappy Anniversary!  On the six month anniversary of President Obama's bad decision to impose tariffs on Chinese tires under Section 421 of US trade law, Reps. Kevin Brady (R-TX) and Dan Boren (D-OK) have sent a letter to President Obama asking him to report on the economic impact of the controversial trade measures (hint: it hasn't been pretty).  As you'll recall, Brady and Boren sent USTR a similar letter back in January and apparently were totally ignored (shocking, I know).  Money quote: "This tire tax affects all Americans—workers, distributors, retailers, and consumers.  Fortunately, the law gives the President the opportunity to review the tax after six months to see if it is working or not. In January, Congressman Dan Boren and I wrote to the Administration and asked for confirmation that it has a system to collect the full range of information so that the President can fairly assess the impact of the tax on all Americans. Regrettably, no such system is in place."  I'm sure it was just an oversight, Congressmen!  Surrrrre.  National Journal reports, however, that Ways & Means Democrats remain opposed to such sanity and transparency, calling the tire tariffs "one in a series of actions he has taken to enforce trade laws," and urging Obama to "do more to address the trade gap with China...."  As we all know, both the "421 as enforcement" and "trade deficit" assertions are utter nonsense and should be treated as such.  But they do provide yet another example of the Democrats' reliance on these two classic protectionist myths.  Broken records, these guys.

• China currency sanity exists; you just need to know where to find it.  For those of you who still want more good stuff debunking the absurdity coming from many of our elected officials and pundits on China's currency policies, I recommend the following: Stanford's Ronald McKinnon drops some serious knowledge on a stable yuan-dollar exchange rate and the yuan and the trade balance;  Reuters' John Kemp on global imbalances and the "Triffin dilemma" (a year old but still good); and AEI's Mark Perry on that dastardly currency manipulator that is, err, Hong Kong?

• Is the US really ending "zeroing"?  Washington Trade Daily reports (no link) that "The United States is finally giving up the battle with the World Trade Organization over the continued use of the controversial 'zeroing' methodology in calculating antidumping duties, US Trade Representative General Counsel Tim Reif said on Friday....  Speaking at a meeting of the Society for International Law, Mr. Reif said he still believes that the WTO is going beyond the bounds of Article Two of the [Anti-dumping] agreement, but said USTR now is working interagency to administratively correct the 'zeroing' issue and bring the United States into compliance."  As you may recall, US officials said similar things at an early-March WTO meeting (and were met with skepticism by me and everyone else).  However, this is now the second time that the US has publicly stated, without subsequent retraction, their desire to finally comply with multiple WTO rulings against the controversial practice, so maybe Reif & co. actually mean it.  I've complained loudly for months about US refusal to stop zeroing in administrative reviews, and how that refusal could end up costing US exports billions in WTO-authorized retaliation, so if this turns out to be true, it's a very welcome development and deserves to be praised.  The proof, however, will be in the interagency pudding.  So stay tuned.

Exit question: given that the United States was endlessly litigating (and losing) WTO disputes on its zeroing practices in order to maintain its negotiating position in the WTO's Doha Round that WTO rules should be changed to expressly allow for zeroing, does the change in US position signal that USTR has totally given up on Doha?  Cripes.

Monday Quick Hits

A few things to note on a slow news day here in the nation's snow-covered capital:

• Vietnam has filed its first ever WTO dispute settlement challenge - against the United States' practice of "zeroing" in anti-dumping administrative reviews of Vietnamese shrimp imports.  The complaint is available on the WTO's website here.  I've discussed the practice of zeroing several times, most notably the United States' new strategy of "settling" certain WTO complaints against US zeroing.  Those cases, however, dealt with original investigations, not reviews, where the US appears to still be fighting tooth-and-nail at the WTO.  Indeed, the EU just asked the WTO to let it impose over $400 million in retaliatory tariffs on US exports due to the United States' refusal to comply with adverse WTO rulings against US zeroing in administrative reviews.  (So much for that grand plan to expand US exports, huh?)  Given the varying US responses to zeroing cases, the new Vietnam complaint - and the new-ish one by South Korea on zeroing in original investigations - will be worth watching.  (Oh, and yes, it's completely absurd that the US still hasn't given in on zeroing.)

• Free traders in Congress (all two of them!) have reintroduced the "Affordable Footwear Act" (H.R. 4316 ) which would mandate the unilateral elimination of abnormally high US tariffs on imports of low-cost shoes that aren't even made in America anymore.  The bill highlights a great example of the idiocy and immorality of US tariffs and is a good first step to remedying such nonsense.  Of course, the fact that legislation scrapping a pointless tax on a basic necessity that disproportionately harms poor Americans can't pass with overwhelming bipartisan support is a sad commentary on the state of US trade policy, wouldn't you say?

• China announced the preliminary results of its anti-dumping investigation against US imports of chicken.  Duties ranged from 43.1% to 105.4%, and a final determination isn't expected for several months.  Preliminary results of China's countervailing duty investigation against the same US product will be out in the next couple months.  And, yes, we all remember how this investigation came about - *cough*tires*cough*.  (Nice WSJ editorial on this whole mess here.)

• Finally, we have some China trade news that all Americans - protectionists and free traders alike - can support: American "shoot-first" point guard, and troubled NBA castoff, Stephon Marbury has been shipped off to China.  He's running point for the Shanxi Brave Dragons, and is already one of the Chinese Basketball Association's biggest stars.  Noted Knicks fan and China antagonist Sen. Chuck Schumer has thus far been unavailable for comment.

That's all for today.  Now if you'll excuse me, I need to go prep for the next blizzard that will be hitting DC tomorrow.