Wednesday, September 9, 2009

The ITC tire (tyre) decision and bridging divergent ways of economic life

by M. Ulric Killion

As observed by Xinhua news agency (Rational decision needed in settling China tire case, Sept. 3, 2009), “US President Barack Obama is due to decide in about two weeks whether or not to impose punitive duties on Chinese tire imports. Despite huge domestic pressure, the president is expected to make a rational decision to protect both US interests and overall China-US trade ties. The decision is due by September 17, with some trade protectionists insisting on imposing punitive duties of up to 55 percent on Chinese tyres to ‘save American jobs.’”

(Dealers negotiating beside a tire model at an auto part exhibition in Shanghai, May 21, 2008; Photo/Asianews photo).

The Approval/Rejection Dilemma
An issue of paramount importance is that this is the first “special safeguard investigation” on Chinese products under the Obama administration (Xinhua, Sept. 3, 2009). As such, the US decision on this case will be perceived as a strong indicator of the US-government policies toward Sino-US relations, especially future trade relations. While Chinese authorities wisely couch the issue in terms of the greater issues of multilateral trade, free and fair trade, and non-protectionist trade policies, there are those in the United States urging approval of the ITC ruling, thereby presenting a dilemma for President Obama and his administration, notwithstanding bipartisan politics. Those groups urging approval comprise unions such as the United Steel Workers (USW), some US tire producers, some politicians and others.

A dilemma for the Obama administration arises from the earlier decision of the International Trade Commission (ITC) that addressed the import of China-made tires. In Washington, on June 2, 2009, the ITC hearing commences. It is a case filed by the USW Union on April 20, 2009, which alleges that an increase in Chinese tire imports have cost 7,000 US jobs. In response, the USW wants the Obama Administration to more than halve the number of imports from 46 million units last year to 21 million. The USW also wants the Obama administration to employ section 421 of the Trade Act of 1974, which requires the ultimate approval or rejection of the president even after a ruling of the US International Trade Commission (M. Ulric Killion, ITC rules against China - finds tire import surge (dumping) in US, June 20, 2009, citing Alec Zhu, Sino-US trade ties face a tough tire test, China Daily, June 9, 2009).

As for the USW’s Section 421 petition, which is a petition filed pursuant to the Trade Act, the ITC issued its now controversial ruling: “by a 4-2 vote that a surge of low-priced consumer tires from China is harming the domestic industry.” It is an import surge that the USW alleged has caused “major job losses and plant closures in the United States” (Killion, June 20, 2009). 

On or before September 17, 2009, as earlier mentioned, President Obama, or perhaps more accurately, the Obama Administration is expected to make a decision, pursuant to section 421 of the Trade Act, which either approves or rejects the ruling of the ITC. A problem for the Obama administration is a growing wedge of opinions, both within and without the jurisdiction and borders of the United States, supporting both approval and rejection of the ruling by the ITC. 

A difficulty only enhanced by the fact of a multitude of reasons by those seeking either approval or rejection. Nonetheless, it is strongly intimated, when gauged by the news media reports, that the issue of approval or rejection of the ITC’s ruling is polarizing along the lines of protectionism, that is, US protectionist policies.

For instance, on the issue of approval or rejection of the ITC’s ruling, China appears, though many will disagree, to be promoting multilateralism, free trade, and removal of protectionist trade practices and barriers. According to Xinhua news agency (Sept. 3, 2009), “The case has become an opportunity for some politicians at the center of US partisan politics to make a show. However, the US government is strongly expected to take into account the long-term development of Sino-American trade relations in making its decision.” More notably, Xinhua writes: 
“If the punitive duties being called for by some politicians and trade protectionists are imposed, more than 10,000 Americans in the tire distribution and retail sectors may lose their jobs, along with about 100,000 Chinese manufacturing workers. In addition, US tire firms with investment in China will suffer. On these figures, punishing China's tire exporters will definitely lead to a lose-lose situation and requires strong opposition from both sides. 
Notably, accusations against Chinese tyres failed to win support from some American tire firms and unions. Some giant US tire manufacturers, including Cooper, have warned that mishandling the tire case may lead to further troubles.” 

In these respects, the official view from China appears to promote greater multilateralism in trade, genuine free and fair trade, and removal of protectionist barriers to trade. Ding Qingfen and Li Xing (Major trade test ahead for Obama with China tire ban) opined that following an acceptance of the ITC ruling, China Daily, Sept. 8, 2009) opined that following an acceptance of the ITC ruling by the Obama administration, “The high-level tariffs, which would effectively impose a ban, will keep Chinese tire imports off US roads, strip 100,000 local laborers of their jobs and potentially spark a series of special taxes by other nations and regions.” Ding and Li also opined that in response to an acceptance of the ruling that “China will likely take retaliatory measures against the US industries.” 
On the other hand, there is the view from the United States. As gauged by news media coverage, it is strongly suggested that the majority view is one of approval of the ITC’s decision. Thus, if the issue is, actually, reducible to simply protectionist versus non-protectionist trade policy, one suspects the majority of Americans, including union members and politicians, would opt for approval of the ITC’s decision.
A case in point is a recent article appearing in the Washington Post, which emphasized the loss of American jobs and wage differentials between Chinese and American labor. (Peter Whoriskey, As Cheaper Chinese Tires Roll In, Obama Faces an Early Trade Test, Washington Post, Sept. 8, 2009). As Whoriskey writes: 
“ALBANY, Ga. -- At the vast Cooper Tire plant here, workers heard for years about their rivals in Chinese factories. In meetings, managers urged employees to run production lines faster and more efficiently to help the company keep up. Overseas laborers were toiling for as little as 20 cents an hour, they were told, and working harder. 
Even more ominously, while browsing the aisles of Kmart and Wal-Mart, Cooper employees could see that, sure enough, the Chinese tires were cheapest. ‘They would have these meetings and say we’re up against the Chinese,’ said Larry Burkes, 29, who worked at the plant, which rises on the city’s outskirts just beyond a mobile-home park. ‘We’d hear it all the time: ‘They work for less.’ There was pressure.’ Now the plant that employed 2,100 people in this small south Georgia city is being shut down, and the troubles afflicting the U.S. tire industry are at the core of what many consider to be one of President Obama's first major decisions on trade policy.”
There is, of course, also the issue of US tire production. The Washington Post produced the following graphics demonstrating this shift in US tire production (Graphic: A Shift in Tire Production, Washington Post, Sept. 8, 2009). According to the Washington Post, “From 2004 to last year, the number of Chinese tires imported to the U.S. more than tripled.”

In other words, although the USW helped Obama to win the presidency, according to Whoriskey, there are other political forces at work; more particularly, he stressed the plight of non-union labor. It is also reasonable to suggest that Whoriskey’s article is typical of the US news media coverage, and the emphasis on the loss of US jobs, China-US wage differentials, factory closings, etc. However, although these concerns are genuine and deserve consideration by the Obama Administration, once the issues are so couched and prioritized, other key issues such as multilateralism, free and fair trade, Sino-US relations, etc, seemingly become loss in the shuffle or politics of the moment. This also serves as a reminder of earlier comments made by Obama’s US trade representative, Ron Kirk. As Jim Abrams earlier reported: Kirk, though supporting international trade in a broad sense, “has also made comments suggesting that protectionism might not be so bad after all (Killion, June 20, 2009, citing Jim Abrams, Former Dallas Mayor Ron Kirk confirmed as US trade representative, Chicago Tribune/AP, March 18, 2009).
Divergent Ways of Economic Life
Assuming such polarization, there is another issue that the news media coverage seems to neglect. It is not so much an issue of simply whether approval or rejection is contingent on adopting or rejecting protectionist trade policies, or even an issue of they (China) versus us (the United States). This is because another underlying issue is more plainly stated as an issue of their way versus our way. The idea of their way versus our way intends to reflect conflicting ways of life; more particularly, divergent ways of economic life between the two countries.
As recently observed by the former US trade representative and now World Bank Group President Robert B. Zoellick, “China has steered a steady course through the stormy seas of the economic crisis.” According to Zoellick, this is because, “Through its massive stimulus and strong lending program, China has contributed to the early signs of a global recovery by keeping its growth rate up. With growth in China now projected at close to 8 percent for 2009 as a whole, and signs of stabilization in many other economies in Asia and around the world, the chances of a truly global recovery have increased measurably” (M. Ulric Killion, World Bank - China Playing Important Role in Steadying World Economy, Zoellick Says / 佐利克说中国在稳定世界经济中起着重要作用, Sept. 9, 2009).
When relating the chances of a truly global recovery to positive contributions made by China, Zoellick reminds us of the critical importance of positive Sino-US trade relations. It is a growing economic interdependence deserving critical consideration by the Obama administration, when addressing the issue of approval or rejection of the ITC’s decision addressing the import of China-made tires.
China, especially the Chinese way of economic life, is possibly proving to be a model for success as it weathers the post-subprime global crisis (or financial crisis) better than most, just as it did during the earlier East Asian financial crisis (1997-98). In this respect, China’s way of economic life serves as a model to emulate, rather than challenge by US protectionist trade policies and barriers. Indeed, there are lessons to learn from China.
The current success or rebound from the financial crisis is partially due to the Chinese way of economic life. In the context of China, their way of economic life, actually, minimized the fallout from the US subprime mortgage crisis, notwithstanding China’s economic policies. For instance, this is because the Chinese way of economic life generally promoted higher saving rates (about 40% of net income), greater numbers of home owners (about 60%), and other measures of frugality in general; all of which are in stark contrast to the  numbers in the United States.
For these reasons, the Chinese way of economic life might deserve emulation. Moreover, in the United States, in the wake of the financial crisis America consumers are now demonstrating an increasing degree of frugality, in the American way of economic life. In addition, the financial crisis does not have its origins in China, nor did China’s export-based economy cause the financial crisis. According to Deng and Li (China Daily, Sept. 8, 2009), “China's GDP grew by 6.1 and 7.9 percent during the first and second quarter. While the US unemployment rate remains high and has been climbing since last April, the US expects to gain from China's high economic growth.” Deng and Li, more importantly, explained that the “Chinese economy has rebounded significantly without having to rely so much on exports.” 
The financial crisis (or US subprime mortgage crisis) has its origins partially in the American way of economic life. However, it is the Chinese way of economic life that partially contributes to an early rebound from the financial crisis, while also allowing China, as Zoellick explained, to increase the chances of a truly global recovery. 
It is also for these reasons that the Obama administration must proceed with caution on approving or rejecting the ITC’s ruling on the import of Chinese tires. An approval of the ITC ruling challenges the success of China’s way of economic life, misplaces the blame for the US subprime mortgage crisis, challenges the chances of a truly global recovery, denies the reality of the American way of economic life (i.e., a model of a consumer driven economy), and also, inevitably, challenges the goals and aspirations embodied in the world multilateral trade system (i.e., multilateralism, free and fair trade, reduction in trade barriers, etc). Conversely, a rejection of the ITC’s ruling enhances the chances of a truly global recovery, by promoting multilateralism in trade, free and fair trade, and a reduction in trade barriers (i.e., protectionist trade policies and barriers).
The answer to the woes of an American way of economic life lies neither in protectionist trade policies and barriers, nor in misplacing the blame for a US subprime mortgage crisis on the Chinese way of economic life. As earlier mentioned, the Obama administration must proceed cautiously when approving or rejecting the ITC ruling. This is because of the larger or global implications that associate with an approval of the ITC decision, including the goals and aspirations embodied in the world multilateral trade system. As Mohamed Sid Ahmed succinctly observed, “The United States cannot move out of history and be at the same time its most authentic contemporary expression.” (Mohamed Sid Ahmed, The Kagan Thesis (3) - Beyond Fukuyama and Huntington?, Al-Ahram Weekly On-Line No. 602, Sept. 11, 2002).
See also M. Ulric Killion, In Tire Tariff Case, Obama Faces First Chinese Trade Policy Test, Aug. 21, 2009.
See also M. Ulric Killion, China sends envoy to Washington on tire case, Aug. 19, 2009.
See also M. Ulric Killion, U.S. distributors deny Chinese tires disrupted market, Aug. 10, 2009.
See also M. Ulric Killion, Tariffs on Chinese tires to hurt US consumers: producers, Aug. 6, 2009.
See also M. Ulric Killion, China: U.S. gov't should seriously consider tire protectionism, Aug. 5, 2009.
See also M. Ulric Killion, ITC rules against China - finds tire import surge (dumping) in US, June 20, 2009.

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

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