Question

Hufbauer and Lowry[1] (2012) examine the effectiveness US safeguard tariffs on Chinese tires in terms of (i) jobs protected and (ii) costs associated with these tariffs. Using the data and arguments presented by the authors, discuss this case. Be certain to discuss the Obama administration’s rationale for imposing this tariff, the benefits to the US, the costs to the US (direct and indirect), the winners/losers, as well as the reaction of the Chinese government.

Answer 1

Examining the effectiveness of tire tariffs on Chinese tires in terms of :

1. Jobs Protected:

According to President Obama’s 2012 State of the Union address, restrictions on Chinese car and light truck tire imports saved “over one thousand jobs”.

Further In his 2012 State of the Union address, President Obama claimed that “over a thousand Americans are working today because we stopped a surge in Chinese tires.” The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to “play by the rules” and serves as a plank in his larger platform of insourcing jobs to America.( Extract from Report PIIE)

But this is one side of coin , the other side comes with different stereos. The official data and statements do not completely justify the situations on ground zero after tariff imposition .

These tariffs resulted in more pressure on retail domestic industry. Taking about equilibrium in economic activities , when there is savings on one side , there exist simultaneous reduction on other side as well. Hence forth the additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry.

when Job losses in the retail sector are offset against gains in tire manufacturing, thus the net result is Nil, rather Negative because of addition of chine’s counter actions.

2. costs associated with these tariffs:

No protection is free, it comes with reputed MRP. So is the case with Obama’s tariff on Tires.

1) Cost of Coming Home:

How much did those 1,200 jobs cost? About $1.1 billion, Hoffbauer and Lowry found, all borne by consumers who were forced to pay higher American prices for tires, prices which shot up still higher when freed from competition with China.

2) Cost of Trade war:

Trade with China in particular, is good for the United States. And trade war has tempered the growth of chine but also America.

3) Higher Taxation:

There tons stimulus package and the financial incentives to domestic industry by government . And the cost of the stimulus is ultimately borne through the income tax, which is highly progressive, while higher consumer prices are disproportionately borne by the poor.

Summary of Obama’s Action.

Every action of administration has to be justified , in financial and non financial terms.

The rationale behind the Tariff move by US government has one sole intention i.e of protection of domestic Industry Trade and Jobs(Quoted and Unquoted ).

The cost to country are many , naming few: higher cost of production, Increased Tax rates , Higher government spending on Stimulus Packages , WTO litigations, Counter tariff on US Exports to china and any more to hype the count of cost .

Fight between among two good , makes great for the better to become best. Same has been case with US – China Trade war . Here Trade barriers have opened door to smaller player . In other words, exporters in countries such as Thailand, Indonesia, and Mexico benefited substantially from stepping into China’s market shoes as those countries, like China, manufacture lower-priced car and light truck tires. Evidently foreign firms, not US producers, are largely filling the space once occupied by Chinese tires in the US market.

Hence the ultimate winners are others and Final looser are the People of places, who’s governments are busy playing game of trade and Tariff and the price money being paid by tax payers !