Who's Next in Line?
Trade after the Chinese Tire Decision
by Steven G. Livingston
The recent decision to protect American-made tires from Chinese competition signals a new toughness on the part of the Obama Administration. Can we expect other Chinese imports to be similarly targeted for protection? If so, how will the Chinese react? Indications are that China will play tit-for-tat. In response to the tire tariffs, it has announced its own new tariffs on American frozen chicken imports. It also sanctioned imports of adipic acid, a chemical used in the production of nylon and PVC, though it has not publicly linked this to any U.S. action. Rumors abound that automotive imports may be sanctioned as well. For this state, what might be the impact of these, and future, actions?
This September, an International Trade Commission (ITC) investigation found for American advocates wishing to reduce damaging levels of Chinese tire imports. The investigation took place under the safeguard provisions of the 1974 Trade Act. These provisions aim to limit imports that are increasing so rapidly as to harm an American industry. Such investigations are to determine (1) whether imports from the target country are increasing rapidly, (2) if the domestic industry has been materially injured (or threatened with such injury), and (3) if it is in fact the imports that are producing the injury. Incredibly enough, none of the key terms in the Trade Act ("increasingly rapidly," "domestic industry," "materially injured," or "threatened") are defined in the statute. The results are long investigations and, in this case, a divided vote. Nevertheless, the end result was the imposition of a tariff of 35 percent on Chinese passenger-tire imports.
This case, of course, really grows out of the rapid increase in imports from China of a very large assortment of manufactured goods. China is hardly the source of most American imports, contrary to what many seem to think these days, but it is clearly a growing source, and has been for the last decade. With regard to tires, we can see the broad outlines of the American case. The value of American-produced tires has stagnated over the past decade, at about $6 trillion, whereas imported tries have doubled in value. Given the trends of the past decade, foreign-sourced tires would exceed American made tires within a year or two. As we can see, China is not yet a dominating importer, though its exports of tires to the U.S. have indeed grown rapidly over the past four years. China accounted for about half of the increase in tire imports since 2004. Only in 2007 did it become the largest single tire exporter into the U.S.
The safeguards decision may have economic ramifications for Tennessee, the home of about 10% of America's tire production. More than 20 Tennessee rubber and plastics manufacturers have won help under the U.S. trade adjustment assistance program over the past two years, suggesting real hurt in the industry. Six of these cases directly involved tires (or components). However, help will come only if car and truck sales rebound and if other importers do not step into the breach. Moreover, Tennessee's largest tire manufacturers, Bridgestone and Goodyear, also have operations in China and presumably would suffer from any production losses there.
Going forward, what can we glean from this investigation about likely future trade decisions involving China? Will other Tennessee industries be affected? Let's apply the criteria used in the tire case to locate other imports that may be targeted for safeguard protections. If we filter Chinese imports by the rapidity of their import growth since 2004 (the beginning date used in the tire case) and by the health of the American-sourced production, we can arrive at those products most susceptible to falling under the same safeguard provisions as passenger tires. Are these products, or industries, of particular importance to Tennessee?
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