Globalization Under Attack

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Globalization Under Attack

Recently, the White House moved quietly to impose a 35 percent tariff on automobile and truck tires coming from China. Now, a set of tires that had been priced at $400 will cost Americans $540.

The problem isn't so much that consumers are going to be paying more for Chinese tires; instead, the real issue is that this action carries considerable symbolic implications for the entire global economy.

According to The New York Times,1 the move on the part of President Obama was prompted by the need to placate the United Steelworkers Union, which represents the tire workers. Obama needs those unions behind him, and not only for future elections; he must also be able to count on their support of his health care plan and environmental legislation.

Technically, what Obama did was legal. Under Section 421 of the Trade Act of 1974, which China signed, the President can impose tariffs on any product if he can show that foreign imports of that product have disrupted the market.2 Of course, the very nature of competition in free markets involves one competitor disrupting another to gain market share. So putting an artificial handicap on any competitor that's successful is essentially doing away with a free market. And a global market can only be free if all players are treated equally.

So it was a surprise to many "free marketers" that, for the first time in history, the United States invoked Section 421. In 1974, when the Trade Act was signed into law, it included a provision in Section 201 that allows the International Trade Commission to decide when "serious harm" is being done to an American industry by a foreign import and to recommend protection of that industry by the levying of tariffs.

But when China wanted to enter the World Trade Organization, it made a special agreement with the United States (called Section 42) that lowered the standards of section 201 — but only for Chinese imports.

The bar is set very low in this provision. It's not like anti-dumping cases. Any company can complain to the government and seek protection under this section, and the government has no burden of proof that unfair practices are involved.

The facts are plain: The importation of Chinese tires to America grew from about 5 percent of the market in 2004 to about 17 percent in 2008. During that time, several American tire factories closed. Then last June, the International Trade Commission voted to call that a "disruption," and the ball was in Obama's court...

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