Obama, Free Trade, and Chinese Tires

It looks like President Obama has sided with the unions again, this time in the Chinese tire dispute:

In the Sept. 12 decision, Obama imposed a 3-year tariff on Chinese-made tire imports. In the first year, it will be set at 35%, far below the 55% levy recommended by the U.S. International Trade Commission. The second year it will be 30%, and the final year 25%. The tariffs begin in 15 days.

I am sure many Americans will be happy with this decision, since it seems like it will save American jobs.  However, if we look at the issue a little deeper, we find that the tire industry themselves were NOT pushing for this.  I assume this is because the US tire industry owns many of the companies in China making this product.  This was coming from the United Steelworkers union, saying that the Chinese were violating WTO rules by dumping too many tires on the US market.  It looks like this is really an attack on US tire companies moving some production offshore, and the union is fighting them by using the government to slow down the exports.

In reality, this decision is a transfer of money from poor and middle class Americans that will now have to spend more of their money on tires, to the union workers who are getting the new subsidy.  The extra money they would have saved may have gone towards buying other things, but will now be taken by the US government in taxes via the tariffs and the union because they can now sell their expensive tires.

Another question I have is, what if China decided to send us those tires for free?  Would we not accept them to “save American jobs”?  I think that would be a bit silly, why not take free stuff?  So I don’t really see much difference between China sending us these tires at a huge discount vs. sending them to us for free.

Another argument you will hear is that China is a currency manipulator and is artificially keeping their wage rates low.  This follows the above question of “what if China sent us those tires for free?  Don Boudreaux makes a great example of why we should not worry about this issue either:

Suppose you’ve long been exchanging your baby-sitting services with your neighbor in return for his lawn-mowing services.  Each week, approximately three hours that you spend sitting with your neighbor’s brood of brats is repaid by two hours your neighbor spends mowing your lawn.

Then one day your neighbor informs you that he’s about to incur a huge debt to hire a fabulously expensive child psychologist who will quickly teach his children some skills in how to better care for themselves — so your neighbor will now need you to sit with his young’uns only one hour each week rather than three.  But, your neighbor quickly adds, he’ll continue to mow your lawn just as before.

You think to yourself that your neighbor is nuts.  Incurring massive debt to hire a child psychologist who claims to be able to train toddlers to watch over themselves??  You conclude that your neighbor has done himself no favors — indeed, that your neighbor has harmed his family, especially over the long run.  You even worry that, when your neighbor must start repaying this debt, he’ll have less time to mow your lawn in the future.  But being a decent human being, you mind your own business and say very little.

So here’s a question for Seekingexports: Would you be wise, in this situation, to ‘retaliate’ against your neighbor by telling him that, until he restores you to three hours of babysitting weekly, you will limit him to only one hour of mowing your lawn each week?

The above passage illustrates that China manipulating its currency only allows us to buy more of their stuff cheaper.  In other words, they are working harder for us.  Why should we complain if they are willing to do this?  Of course they could raise their prices later on, but we can always rebuild our tire factories and start producing them again.  It’s not like we will forget how to make tires, and clearly the Chinese know that and will keep prices low to avoid this.

In the early 90’s, Paul Krugman wrote an excellent essay on free trade. Now that he is a NY Times blogger, I will not be holding my breath waiting for a post about this decision.  At the end of the day, many people will still buy American tires because of their quality, or because they want to “buy American”.  This is great – everybody should have the freedom to buy whatever tires they desire.  The issue here is now the government, with this decision, is forcing its citizens to pay more for tires to help a special interest group.  To me, this is not the way a free society should operate.