President Obama's decision last week to impose a 35 percent tariff on imported Chinese tire imports threatens the long-term health of our economy and reflects the triumph of special interests over the common good. The move was made in response to a complaint filed by the United Steelworkers union (which represents many U.S. tire workers). The new tariff has no support among economists, though it is in the favor of the president's political backers. This decision was the folly of the president, and, if he wants to ensure the health of the U.S. economy, he should avoid such reckless choices in the future and work to augment U.S.-China economic relations.
First of all, one cannot stress enough the benefits of free trade. Since the days of Adam Smith, the father of the study of economics, it has been recognized as an economic fact that free trade is beneficial to both participating parties. Allowing American consumers to purchase cheaper foreign goods leads to a net gain for the economy and opens up other markets for American goods. It is as true today as it was in 1776 when Smith published "The Wealth of Nations." According to Harvard economist Greg Mankiw, 93 percent of economists agree with the statement: "Tariffs and import quotas usually reduce general economic welfare."
Albeit the gain does not come without its drawbacks as those domestic producers who cannot compete with their foreign counterparts cease to exist. Although this comes as a negative to this particular group (in this case the United Steelworkers union), the gains to the American consumer and the new markets for other American goods far outweigh the downside. While the closing of domestic industries is not something to celebrate, the alternative to stand athwart this change would merely protect the well-being of a few at the expense of everyone else. Economist Frederic Bastiat satirized this notion in suggesting that we block out the sun for its unfair competition against candle makers.
Another consequence of enacting barriers to free trade is the possibility of a trade war. Upon the announcement of the new tire tariffs, China retaliated with new tariffs on American automotive and chicken products. China's ambassador to the U.S., Zhou Wenzhong, warned that President Obama's decision "will set a dangerous precedent." If the president continues on the course of protecting domestic industry against competition, harsher responses can be expected from more of our trading partners.
The last time the U.S. pursued such a policy occurred in 1930 with the passage of the Smoot-Hawley Tariff Act. This initiated a worldwide trade war as America's trade partners responded with steep trade barriers against the U.S. Economists largely fault this breakdown in global trade for drastically exacerbating and deepening the Great Depression. The recent action of the president represents a preference to pay back political supporters at the expense of the nation's general welfare. During the presidential campaign, the United Steelworkers threw their entire support behind Barack Obama.
Seeing as there is no logical economic support for the president's recent decision, it is completely within reason to conclude he did it to return the favor the USW. While it easy to see the president as just sympathizing with those faced with losing their jobs, there are other options he could pursue. One such option is to invest in displaced-worker programs. This way, those who lost their jobs can learn new skills and adapt without threatening the economy as a whole. However, this would mean defying the will of the USW.
James Madison, the father of the constitution, warned of the threat that factions posed to the common good. Actions such as the new tire tariff show that this threat is still potent even with our well-designed Constitution. Much blame can be put on our system where candidates rely heavily on donations from political action committees but it is also evident that a statesman who puts personal success above the welfare of the people is not the ideal. If President Obama wants to live up to the high standards he set for himself of heralding a new kind of politics, he could start by deviating from this path of returning favors at the cost of the nation's well-being.
Be the first to comment on this article!