America’s U-Turn!

Another Populist move by Obama.

U.S. Adds Tariffs on Chinese Tires.

“President Barack Obama slapped punitive tariffs on all car and light truck tyres entering the US from China. Beijing decried the decision, saying the move sent a dangerous protectionist signal before a G20 summit and could stoke reactions impeding global recovery.”

Below excerpt from WSJ

“The decision is a major victory for the United Steelworkers, the union that represents American tire workers. And Mr. Obama cannot afford to jeopardize his relationship with major unions as he pushes Congress to overhaul the nation’s health care system.”

Let me tell you that since taking office, President Obama has frequently declared himself a free trader. In several appearances over the last few months, he has driven home the message that protectionism is dangerous to economic health.

Now - do you guys get a feeling that he’s just a populist – but lacks true wisdom?Ever since he was elected – I always got a gut feeling that he’s just a populist, and a good orator ofcourse – but someone who lacks conviction and wisdom.He’s someone who tries to take everyone on the same boat, take his policy in middle east for example, but this is not going to work in long term.

Anyway, this move is definitely protectionism! Now – I am not an expert on this – but isn’t it already a proven fact that it does more harm in the longer term.Who knows it better that we Indians, right?Look what we made till we were living under protectionism – a scooter!

Considering that Americans have been preaching against protectionism to the whole world, this would be a hypocritical move.What right would America have after this to ever talk against protectionism?

This might not only back-fire America, but could slowly lead to something which the world is not ready for.This is a wrong approach to a right problem.

1930 great ‘depression’ was after all a just a ‘recession’ which was badly handled

“There is nearly universal agreement among economists of all ideological persuasions that trade protectionism (i.e., the Smoot-Hawley tariff) was a primary catalyst for the Great Depression. Tariffs in the 1930s originally were intended to protect agriculture, but by the time other special interest groups had climbed on board, an average tariff of close to 60% was imposed on more than 25,000 items. Retaliation by America's trading partners was swift and fierce; the entire system of world trade then was dysfunctional for a decade.”

One of the reactions :-

“The effect of new U.S. tariffs on Chinese tires is as clear as day: U.S. consumers will pay more for tires.The point is to reduce our standard of living by denying us the products of overseas trade in order to benefit a few U.S. tire manufacturers and their union members.”

Similar issues had come during Bush era but he chose a different, clearly the better route.

Below excerpt from WSJ

“President George W. Bush received four similar recommendations from the trade commission, the most recent one involving steel pipe in December 2005, but he rejected all of those recommendations.”

An interesting and welcome development is giving China some hope on their export dependent economy :-

“China welcomed the decision of the United States Court of International Trade to rule the U.S. Department of Commerce (DOC) as "unreasonable" for its imposition of anti-dumping duties (AD) and countervailing duties (CVD) on tires from a Chinese maker”

However the below news is depressing

“Three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union's threat to protect other U.S. industries after winning a recent trade decision against China.”

What remains to be seen is how would Obama react?If he goes for tariffs on imported paper – he will almost create a panicking situation.He might want to refrain from doing this, and be seen as protectionist but how would he then justify tariffs on Tires alone? Now this is what happens when you lack conviction!!