A Trade War Over Rubbers?
The United Steelworkers had a big hand in putting Barack Obama in power. Now they want some payback. The United Steelworkers lodged a complaint that a flood of cheap Chinese tires had cost more than 5,000 union jobs in recent years. Obama has until Sept.17 to rule that the White House put a 55 percent tariff on tires imported from China. Which would be the end of Chinese tire imports. Tires? Steelworkers?
Well, the tires are steel-belted.
One would think that U.S. tire makers are excited about getting rid of cheap Chinese imports. Not so. “Most major U.S. tire manufacturers have tire plants in China or import from there.,” writes the Washington Post. The increasingly popular budget end of the tire market has been nearly completely moved to low-cost producing countries. The 5000 union jobs were lost, because Americans want cheap tires. The tariff would hurt American companies who import them, and American buyers who would have to pay for more expensive tires. And it’s not that Chinese tires have taken over the industry. “The value of Chinese tire exports to the U.S. totaled $1.8 billion last year,” writes the Wall Street Journal, “in a market segment worth $16 billion a year.”
American tire distributors and retailers are likewise against a trade war about tires. They “say import penalties will do more harm than good, costing jobs and forcing Americans who rely on affordable tires to continue driving on old, worn tires,” writes the WSJ.
The Chinese government is appealing to the wisdom of Obama, who shouldn’t risk a trade war over some steel belted radials. Just in case wisdom won’t prevail, China is preparing for the worst.
“The Chinese government will not turn away from issues that will harm the interests of Chinese industries. Officials from the Bureau of Fair Trade for Imports & Exports with the Ministry of Commerce said China has prepared an assortment of plans for countering different possible results from the Obama administration,” writes China Daily. One of the retaliatory options on the table: A hefty tariff on US auto imports. During the first half of the year, China imported more than $1 billion worth of automobiles from the US. About the size of Chinese tire exports. A nice tit-for-tat.
If the US slaps punitive tariffs on tires, then the Chinese will make imported Fords and Chevys so expensive that a Mercedes S-Class looks like a bargain. All the while, cheap tires will continue being imported from other countries. $5.1b of tires are already being imported from elsewhere. With the tariff on Chinese tires, it will be $6.9b from elsewhere. No new jobs in America. The UAW will be ever so grateful to their USW union brothers for losing them even more jobs. Morosity reigns. Has everybody forgotten that there are more elegant ways to stop Chinese tires?
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We traded paper dollars for industrial output. The Chinese sent us goods and while the quality is suspect on much of it the quality of US dollars has taken a sudden dive for the worst. They will end up with depreciated worthless dollars and we get to keep the stuff we bought. I think we might get a slightly better deal. This explains the full on panic over deficit spending here over we see in Beijing. What happens next? Well they could demand gold, the Saudis did during ww2 for oil. They could demand assets of another kind, like ownership of companies (cough GM cough) or they could try to demand payment in Euros. We might have to wash US dollars in Europe before getting that load of rubber duckies delivered over here. This is all going to hit the wall soon. We are going to find out what happens when people who have no idea where money comes from start spending too much of it. And cheap tires will be the least of our worries.