Tire Wars Could Be Just The Beginning

First it was the “Buy America” requirement in the Obama administration’s stimulus bill that raised concerns of a growing wave of protectionism in the US, and now it is a new tire tariff to be placed on tires from China. The tariff – which will add a 35 percent surcharge to each imported tire – was announced late on Friday in what is a growing trend on the part of the current administration to release controversial news items over the weekend when fewer people are paying attention.

The United Steelworkers union – which represents workers in the tire industry – actually petitioned for a 55 percent tariff to counter what the union claims to be a case of willful tire dumping. Whether Obama himself believes this to be the case – or whether he was simply pandering to the union in return for support of his initiatives – remains to be seen. Whatever the motive, the fact is, the timing was dreadful.

In less than two weeks, Obama will host the G20 Summit in Philadelphia and there is little doubt that China – indeed all of America’s trading partners – will be looking for an explanation from a government that professes to be for free trade, but acts in a completely opposite manner. Earlier this year, Canadian business were shutout from the bidding process for contracts tied into the stimulus plan despite smoothly-offered assurances from President Obama that the bidding would be an open process.

When this soon proved to be false, a groundswell of support calling for retaliatory actions grew with some Canadian border towns actually voting to officially refuse to conduct business with their neighbors to the south. A similar phenomenon is already underway in China, with chicken products imported from the US targeted as a candidate for reprisals.

It is unlikely that either of these events will escalate into an all-out trade war, but the US must watch its step lest it alienate both its number one supplier of energy (Canada), and its largest trading partner and holder of more than $2 trillion of its debt (China). Can you imagine the destabilizing effect on the US economy if China were to suddenly sell-off even a portion of the Treasury debt it holds – or worse still – refuse to offer any additional loans? With an annual operational deficit of more than $1.5 trillion – not to mention debt now nearing $12 trillion, America cannot afford to lose even one of its credit lines.

No, this is one case where the government needs to look at the bigger picture. Yes, it’s true that taking a tough stance where you are seen as protecting domestic jobs is an easy vote-getter, but engaging in an all-out trade war just as your economy appears to be on the verge of recovery from the worst recession in over sixty years, is a sure-fire way to fall back into recession.

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