Tire tariffs -- what on Earth is Obama thinking?

Might we not have a security interest in preserving tire-making facilities here in the States?

I'm not the biggest pro-military guy there is, but heck; we're going to need tires for our vehicles for some time yet, it may not be such a good move to let China run all of our domestic sources out of business.

But, then again, I think the words 'free trade' are one of the great lies ever perpetrated on the world, so I'm obviously out of step with the general sentiment that started this thread.

Cycloptichorn

2 Replies

@FreeDuck,

FreeDuck wrote:

Or because they are dumping a cheaper product. What it looks like to me is that the tariff is meant to slow it down, not stop it, which is why it becomes less and less each year. I can see why you'd want to slow it down: if a cheaper but inferior product is dumped on the market and puts its competitors out of business before consumers have a chance to judge the inferior quality, then what are we left with? (Not saying they necessarily are inferior, but it's been my experience that you get what you pay for.)

Then again, if the concern is that American markets will be swamped with products of inferior quality, it would seem that the answer would be to put quality standards in place rather than to sabotage the import of the product by putting tariffs into place.

Also, you seem to have reached the conclusion that a cheaper price often is synonymous with inferior quality without government assistance. Why should other consumers not have the same capability?

1 Reply

@Cycloptichorn,

Cycloptichorn wrote:

Might we not have a security interest in preserving tire-making facilities here in the States?

Don't stop there, we also have an interest in being able to produce our own food, so that must justify farm subsidies... you really could go on and on and justify any protectionism this way. The military can always stockpile tires, or just pay more if the emergency ever does materialize. This really isn't about security, it's about protectionism and politics pandering to it.

Bottom line is that the US talks out of both sides of its mouth on this issue. It coaxes other countries into free trade agreements that are deliberately one-sided.

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@Cycloptichorn,

Cycloptichorn wrote:

Might we not have a security interest in preserving tire-making facilities here in the States?

I'm not the biggest pro-military guy there is, but heck; we're going to need tires for our vehicles for some time yet, it may not be such a good move to let China run all of our domestic sources out of business.

There's another side to this, though: using that logic, you could also conclude that the chances of China and the United States going to war with each other decrease as the two economies become more dependent on each other.

(Just the fact that the America buys $4.46 worth of Chinese goods for every $1 worth of American goods sold to China means that China also very much depends on the US.)

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FreeDuck wrote:

Are they cheaper?

The price at the box office is the same, but the price per showing is certainly cheaper. By the time a typical American movie reaches Germany, it has already run in America for something like three weeks, and has likely earned its production cost. European revenues are not nothing for Hollywood, but they're extras.

joefromchicago wrote:

"Stupid" in what sense? As a matter of pure economics, or as political policy?

I think it's stupid in every sense. Stupid economic policy for America, because American consumers have to pay more for their tires; bad ethics towards Chinese producers, whom the policy deprives of an opportunity to sell tires that American consumers want to by; bad foreign policy, because it gratuitously risks a chain-reaction of retaliation and re-retaliation that severely impedes world trade.

joefromchicago wrote:

Not every restriction on free trade is a bad idea. After all, American companies aren't allowed to dump products on the market either -- that would be a violation of the antitrust laws.

This analogy will have a hard time persuading me, because I am generally very skeptical of the whole concept of "dumping" and the laws enacted against it. That said, we need not reach the merits of my skepticism in this particular case, because there is no showing that the Chinese are selling their tires below production cost. Only that they are rapidly gaining in market share.

Cycloptichorn wrote:

Might we not have a security interest in preserving tire-making facilities here in the States?

In principle, yes. In practice, national security won't be a real issue until the foreign market share reaches, say ninety percent. (Or whatever it takes so the US armed forces can't put tires on their vehicles with the remaining share.) If and when that happens, we can talk.

1 Reply

@Thomas,

Thomas wrote:

joefromchicago wrote:
Not every restriction on free trade is a bad idea. After all, American companies aren't allowed to dump products on the market either -- that would be a violation of the antitrust laws.

This analogy will have a hard time persuading me, because I am generally very skeptical of the whole concept of "dumping" and the laws enacted against it. That said, we need not reach the merits of my skepticism in this particular case, because there is no showing that the Chinese are selling their tires below production cost. Only that they are rapidly gaining in market share.

I know there are some who simply refuse to believe that any company has ever "dumped" its products on the market. Most of them (including the ones that I have met) tend to believe that, since it is not rational for a business to "dump" its products, it follows that no business would ever do so. I remain skeptical of such thinking, in large part because I have no faith that businesses are any more rational than the average person.

Nevertheless, "dumping" remains illegal. Whether that's good economic policy or bad is really beside the point: it's illegal regardless. And if American firms are prohibited from "dumping," then why would it be unfair for the US to prohibit Chinese firms from "dumping" their products in the American market? After all, if Chinese firms were permitted to "dump" but American firms weren't, wouldn't the Chinese firms have an unfair competitive advantage? As I see it, this isn't so much a case of American protectionism as it is of American law being applied uniformly to foreign as well as domestic entities. Why is that such a bad thing?

As for the particular facts of this case, I don't know anything about them. The government has said that the Chinese firms are "dumping." From what little I've read, there have been several levels of review regarding that charge, and the charge appears to be substantiated. If you are in possession of information that refutes that charge, then I'd be happy to review it.

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@joefromchicago,

joefromchicago wrote:

Nevertheless, "dumping" remains illegal. Whether that's good economic policy or bad is really beside the point: it's illegal regardless.

The law being invoked does not restrict itself to "dumping", which I've seen very little evidence for in this case (a few years ago I saw a bit about subsidy that remains the only evidence I've encountered). It can be enacted for mere market "disruption".

The law was negotiated with China in order to let them into the WTC. We have the legal right to do this under those vague rules, but unless there is a legitimate case of "dumping" here it still violates the spirit of free trade that we preach.

Quote:

As for the particular facts of this case, I don't know anything about them. The government has said that the Chinese firms are "dumping." From what little I've read, there have been several levels of review regarding that charge, and the charge appears to be substantiated. If you are in possession of information that refutes that charge, then I'd be happy to review it.

This isn't how burden of proof works. If you say it's dumping I'd be happy to review your evidence that it is dumping.

1 Reply

essentially I am a total freetrade geek. on the other hand I remember just a few years ago when a major meat producer (from colorado) had tons on hamburger declared "contaminated" the meat producer shipped the hamburger to Japan which inspected the meat and refused to have it off-loaded. I'm guessing the product was "dumped." I'm sure many countries do much the same with their products (get rid of them to any buyer when possible).

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@Robert Gentel,

Robert Gentel wrote:

The law being invoked does not restrict itself to "dumping", which I've seen very little evidence for in this case (a few years ago I saw a bit about subsidy that remains the only evidence I've encountered). It can be enacted for mere market "disruption".

That may be so. But, as I understand it, the core of the case against the Chinese firms concerns "dumping."

Robert Gentel wrote:

The law was negotiated with China in order to let them into the WTC. We have the legal right to do this under those vague rules, but unless there is a legitimate case of "dumping" here it still violates the spirit of free trade that we preach.

Well, the ITC found a legitimate case of "dumping." What more do you want?

Robert Gentel wrote:

This isn't how burden of proof works. If you say it's dumping I'd be happy to review your evidence that it is dumping.

You missed where I said that the charge had already been reviewed and had been substantiated. I don't need to meet the burden of proof on that charge -- it has already been met. You can read the ITC's preliminary report here (.pdf). If you, on the other hand, have information that tends to show that the ITC was wrong, then I'll be happy to review it.

1 Reply

On Wall Street today; Tire manufacturers: Cooper Tire & Rubber Co. /quotes/comstock/13*!ctb/quotes/nls/ctb (CTB 15.51, +0.94, +6.45%) shares jumped 11%

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@joefromchicago,

joefromchicago wrote:

That may be so. But, as I understand it, the core of the case against the Chinese firms concerns "dumping."

And I, in turn, would love to see the evidence that they are pricing below their costs. I have seen no such evidence.

Quote:

Well, the ITC found a legitimate case of "dumping." What more do you want?

I think this is an ipse dixit on their part. Just because they invoke antidumping laws does not make this a case of dumping. Dumping means selling below their costs. I have seen no such evidence from the ITC.

Quote:

You missed where I said that the charge had already been reviewed and had been substantiated.

I didn't, actually. But just because Joe says it has been substantiated doesn't mean it is. Just like it doesn't mean it's dumping if the ITC says it is.

Quote:

I don't need to meet the burden of proof on that charge -- it has already been met. You can read the ITC's preliminary report here (.pdf).

Ok, now I downloaded this again and read it through again. And I still see no evidence in there of dumping. So could you point out where the burden of proof for this charge is met?

Quote:

If you, on the other hand, have information that tends to show that the ITC was wrong, then I'll be happy to review it.

This isn't how burden of proof works, but if it's how you like it to work:

"The claim it is dumping has been reviewed and has been found to be unsubstantiated."

Or if you want a more specific argument: there is inherent bias in the methods typically used to allege Chinese dumping. The standard way to determine the dumping margin is to compare export cost to normal cost. However the Chinese market is not considered a market economy so analogue markets are used in its place. The most commonly used analogue market is the US. So often a determination of dumping just means that they are selling it for less than was typical in the US. That isn't dumping, it's selection bias of the "normal cost".

If anyone else has evidence that this is dumping, I'm actually very interested in seeing it. I've spent a lot of time looking for it and have not found anything except for some subsidies to back up the claim of unfair competition.

What I'm looking for is really simple and clear-cut: evidence that the Chinese tire imports are being sold under their costs, not under U.S. tire manufacturers' costs.

2 Replies

@old europe,

old europe wrote:

Also, you seem to have reached the conclusion that a cheaper price often is synonymous with inferior quality without government assistance. Why should other consumers not have the same capability?

Not necessarily, no. What I have is a moderately well-founded bias backed up by nothing but a few experiences and unscientific extrapolation from those. Of course everyone should get the opportunity to judge for themselves.

Edit: But sometimes it's nice to be able to learn from others' experiences and not have to make the same mistakes.

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@joefromchicago,

joefromchicago wrote:

I know there are some who simply refuse to believe that any company has ever "dumped" its products on the market.

Depends on what you mean by "dumping". It's a very slippery concept once you try to pin it down to specifics. So maybe I should ask: what, specifically, do you mean when you use the word "dumping"?

joefromchicago wrote:

The government has said that the Chinese firms are "dumping." From what little I've read, there have been several levels of review regarding that charge, and the charge appears to be substantiated.

That's not my understanding. From following the story in the New York Times, my understanding is that the US International Trade Commission has determined that Chinese tires are surging in US market share. Apparently this is all it takes to trigger an anti-dumping clause in the trade agreement between the US and China. I am not arguing with this finding. Still, a surging market share is no evidence of actual dumping, no matter what the clause in question says.

2 Replies

@Thomas,

I know you asked Joe, but the final determination used to be that if the product were being sold for less than the variable cost of production, the definition had been met.

1 Reply

@Robert Gentel,

Robert Gentel wrote:

Ok, now I downloaded this again and read it through again. And I still see no evidence in there of dumping. So could you point out where the burden of proof for this charge is met?

In support of what you say, I think the commission's "determinations" sum up their position quite well. They read in relevant part:

Quote:

"[T]he United States International Trade Commission (Commission) determines [...] that there is a reasonable indication that an industry in the United States is materially injured by reason of imports from China of certain oil [...] country tubular goods (OCTG)[...]. OCTG imported from China are alleged to be subsidized and sold in the United States at less than fair value (LTFV)."(Numerous references to statutes omitted -- T.)

So, they (1) determine that American manufacturers are harmed by Chinese imports, (2) note that the Chinese are alleged to be selling below production costs, but (3) take no position on whether the allegations are true. I don't see how this proves Joe's allegation that the commission has found there to be dumping.

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@roger,

Thanks for the definition, Roger. By "variable cost of production", do you mean average or marginal cost? The two can diverge quite strongly if there are economies of scale.

1 Reply

@Thomas,

As I recall, the fixed costs of production include Factory Overhead, Depreciation, and several other factors which I have forgotten. I seemed to have tossed my Cost Acconting textbook.

Variable costs are Materials, Wages (but not salaries) and a few other factors which I have also forgotten.

In other words, if you produce 10,000 tires, how much does it cost to make number 10,0001? Anyway, that was the final deciding point circa 1992.

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You all have made a wrong turn......you should go back to my claim that Obama made this move on national security grounds, that we are protecting what is left of the us tire manufacturing base because having a us manufacturing base is critical to national security.

Quote:

June 03, 2009

Chinese import case not a dumping investigation

A spokesperson for the U.S. International Trade Commission (ITC) says the commission's investigation into whether Chinese tire imports are causing a disruption in the U.S. market is classified as a "safeguard investigation," not a product dumping investigation.

The ITC held hearings yesterday, June 2, involving representatives from both the United Steelworkers and various tire companies that sell and/or import consumer tires from China. Several senators and congressmen also testified before the commission. (For more information, see U.S. International Trade Commission hears Chinese tire case, posted earlier today, June 3.)

Safeguard investigations can result in "relief put in place to allow U.S. industry to adjust to competition," the spokesperson told www.moderntiredealer.com.

Moving forward, the ITC will make a determination if imports are disrupting the market. If the determination is affirmative, an official recommendation will be made to President Obama. If a negative determination is made, the process will end, says the spokesperson.

http://www.moderntiredealer.com/News/Story/2009/06/Chinese-import-case-not-a-dumping-investigation.aspx

The debate on dumping is not relevant to this case.

1 Reply

@hawkeye10,

hawkeye10 wrote:

You all have made a wrong turn......you should go back to my claim that Obama made this move on national security grounds, that we are protecting what is left of the us tire manufacturing base because having a us manufacturing base is critical to national security.

Several people have responded to this argument already. It's not a convincing reason, or a legally legitimate reason, for this protectionism.

Quote:

The debate on dumping is not relevant to this case.

It's just as relevant as the security issue, in that both are pretexts to defend protectionism that is really just motivated by politics as usual. One hand washing the other. This isn't about national security and it isn't about dumping.

1 Reply

@Robert Gentel,

Quote:

It's just as relevant as the security issue, in that both are pretexts to defend protectionism that is really just motivated by politics as usual. One hand washing the other. This isn't about national security and it isn't about dumping

National Security is an oft used justification for protectionism, and while the wisdom of protectionism can be argued either way so long as the majority of nations agree that National Security justifies it....it does.

1 Reply

Tire tariffs -- what on Earth is Obama thinking?

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