December 20, 2010

DEMOCRATS VS THE ECONOMY:

Protection Rolls On: President Obama remains conflicted on trade. Consider this week’s ‘victory’ over China at the World Trade Organization. (Philip I. Levy, December 15, 2010, The American)

China safeguard cases differ from enforcement cases not only because they require no violation of rules (to my knowledge, no one argued there was any violation in the tires case), but also because the president retains ultimate discretion over whether the protection is a good idea. In the Bush administration, multiple Section 421 cases cleared the low USITC hurdle, but were then rejected by the White House. The main reason—at least for those decisions in which I participated—was that protection would not have helped anyone.

It can be tempting to think of China and the United States, economic behemoths both, as the only two countries in the world. That’s wrong, of course, and the error matters. These China safeguards only impede Chinese exports, not exports from the rest of the world. In the Bush administration cases, there was evidence that protection would just leave U.S. consumers paying higher prices while production shifted to other countries.

The same arguments applied in the tires case (see here), which was brought by the United Steel Workers, not the domestic industry. President Obama, unlike his predecessor, decided to proceed anyway. The good folks at the Democratic Leadership Council recently offered this assessment of the tire tariffs one year later: “Altogether, then, the tariff seems to have shifted the sources of imports, with China shipping fewer tires and others more, but made little apparent change in total tire-trade or employment.”

So what does this week’s WTO tires decision really mean? That the Obama administration’s protective measure was not illegal, only unwise and ineffective. That’s not much to celebrate.

Since before he took office, President Obama has been conflicted on trade.

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Posted by Orrin Judd at December 20, 2010 5:03 AM
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