When President Obama was elected into office, the world was cheering him on. Singing all sort of praises from being a new face of equality and renewed hopes of better ties between US and the rest of the world. An acquaintance, an extremely brilliant chap whom I highly respect and one time adviser the Singaporean government on matters pertaining to military defence and foreign policy (he has since moved on to a less military focused role to public policy and telco technology) told me that he had his reservations against Obama. Of course, saying that you do not share the world's optimism amidst a wave of Obama-mania will not win you many friends so he only shared his inner thoughts with only a few. This chap reasoned that Obama's background and leadership style suggests that he is more likely to favour protectionist policies. And that Americans in general, the "Joe Plumber" type, will continue to support him in the short term because of his promises to protect jobs from foreign competition. The rest of the world meanwhile, will be at the losing end (i.e. Singapore, whose government he consulted for) because trade with USA - which is still the largest trading partner for many countries will be reduced. America will see a temporary spurt of growth, due to the many "socialist" left-wing leaning policies that promotes domestic industries and distribution of wealth. But we live in an age where political boundaries and the concept of nation states are slowly losing their significance. The economic reality of today is that you can't close your border to trade and not hurt your own people in the longer term. Therein lies the problem, Americans will suffer in the longer term though they will see a temporary period of short-lived growth while the rest of the world will not be any better off due to reduced trade. As such, the economic recovery will be a very slow and difficult process. I have to admit at that time I don't know what to think of his comments.
His words and predictions slowly began to ring true when early this week, President Obama signed an edict to impose new duties of 35% on Chinese made tires imported to USA. The new tariff will take effect Sept. 26 and add to an existing 4 percent duty. President Obama argued that the move will save American jobs from being lost to cheap imports being "dumped" in America. But that is a seriously flawed argument - it not any better from Bush Jr.'s flawed argument of hunting for WMDs in Iraq.
Don't the Obama administration realise that a large majority of Chinese made tires are actually produced by Western tire companies, a large number of them American? American tire company Cooper Tires have even publicly criticised the move. It is not just tire makers who are concerned. Leading companies from other industries are closely watching the recent trade spat as there is no reason why the protectionist policies will not be expanded to include other industries. Bloomberg news reported that multinational companies such as Caterpillar Inc., Citigroup Inc. and Microsoft Corp. have urged Obama to refrain from curbing imports, saying it could lead to a “downward protectionist spiral.”
The only group who supported Obama's move is United Steelworkers union, and they are not too different from UAW (United AutoWorkers Union). United Steelworkers argued that cheap imports cost 5000 American jobs. But, you wouldn't take economic lessons from factory workers won't you? The 5000 American jobs lost are not directly due to cheap imports, but are due to the simple fact that cost pressures and a generally depressed income levels (due to the current economic recession) is causing the market the increasingly shift towards cheap budget tires. China is a low cost manufacturing base and naturally American car makers would want to take advantage of that to meet the demands of the market. The 5000 American jobs are lost because American domestic tire industry is unable to find a way to meet the market demands, they are producing tires that not many wants to buy. Now that US slaps higher tariff on Chinese made tires, what is stopping companies from importing cheap tires from other low cost bases like Eastern Europe, South America and ASEAN grouping countries? Thailand, Indonesia and India are major tire producing and exporting countries. Is Obama going to implement a blanket ban on all imported tires then?
The new tariff will only hurt even more American jobs in the longer term. Without lower cost resource, American businesses in the downstream will be hurt. A simple example would be transport companies will operate at a higher cost and this will affect everything from Wal-Mart products and UPS parcels and even American car manufacturing (not just the domestic Big 3 but foreign makes like Toyota who makes cars in US as well). Just think of the domino effect starting from Wal-Mart and the already battered US auto industry.
Wall Street Journal reports that Chinese tire imports account for only 11 percent of the overall tire market in USA. With recent price hike in Chinese made tires, somebody will have to move in to fill this eventual "void" left by these 11 percent of Chinese made tires. Beneficiaries will include Thailand, Indonesia and India. All main tire makers including Goodyear and Bridgestone (Firestone) have significant R&D and production facilities there. But it will not be a simple affair as just sending another shipment of tires to America instead of to another country. Tires are tailored to each individual export destination country as no two countries have the same road, weather and driving condition. Tire compounds and thread pattern have to be developed specific for each region / country. It will take sometime before anyone can move in to fill the gap left.
The irony is that it is the very same US of A, via its immense influence wielded in the WTO, that is urging developing markets to liberalise all the markets, everything from mineral mining, energy, finance and banking, automotive, phamaceuticals, etc etc.
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