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Brooks Wilson's Economics Blog: The Obama Administration and Trade

Saturday, September 12, 2009

The Obama Administration and Trade

Economists like trade. According to Alston, Kearl, and Vaughn, who surveyed economists in their 1992 American Economic Review article titled, "Is There Consensus among Economists in the 1990s?" 93% of economists agree with the statement that "tariffs and import quotas usually reduce general economic welfare."  Whether between households, states, or nations, it increases prosperity through specialization.

Those who oppose open trade succumb to Caplan's antiforeign bias, and perhaps antimarket, and make-work biases as well.  Politicians who support measures to limit trade may be voicing their constituents' biases or their special interests' wants but they are doing so at the expense of their constituents' well-being.

The Obama administration has nipped at the heels of our free trade policy.  According to the Wall Street Journal's editorial writers, ("A Protectionist Wave,"),
The White House leaked word late Friday evening that the U.S. will impose a 35% tariff on imported Chinese tires used by millions of low-income Americans. We wonder if President Obama understands the political forces he's unleashing with this blatant protectionism.
Mr. Obama is setting a precedent in the tire case because he is applying a previously unused part of the trade law known as Section 421. This allows U.S. industries or unions to seek protection from "surges" of Chinese imports, with a lower burden of proof than normal antidumping or countervailing duty cases. President Bush nixed the four Section 421 petitions that reached his desk, citing the national economic interest. Domestic lobbies had lobbied Mr. Obama hard to reverse that pattern and set a new protectionist precedent...

This threat will now be realized as other industries pursue the 421 solution to reducing competition. Some of the product categories that have seen import surges include shoes, lawn mowers, television monitors, hearing aids, musical instruments like keyboards and guitars, women's underwear, blouses and t-shirts, according to Greg Rushford, editor of a newsletter on trade policy. Oh, and trousers, women's knit shirts and bras, according to Cass Johnson, president of the National Council of Textile Organizations—another lobby that must be gleeful that Mr. Obama has unleashed Section 421.

As a candidate, Mr. Obama courted union support, and the United Steelworkers filed the tire case anticipating he would pay them back. Some in the business and policy communities thought Mr. Obama didn't really mean it, and that like Bill Clinton he would stand for the national economic interest in open trade once he became President. Mark that down as another misjudgment. In his first big trade test in the White House, Mr. Obama has allied himself with the protectionists, and the world will see his political surrender and rush to exploit it.
Consumers who buy Chinese tires, including millions of low-income Americans will be taxed through higher prices for tires that they freely chose to buy.  I disagree with one point made by the writers, that this was the administrations "first big trade test."  I believe that that honor goes to signing the stimulus bill (American Recovery and Reinvestment Act of 2009) with the buy American clause.  President Obama's economic advisors should remind him of the role that protectionism played in deepening and prolonging the Great Depression. 

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