SINGAPORE, April 29—Here in one of the world’s great international trading cities, watching CNN’s breathless coverage of the change that President Barack Obama has brought to America could be likened to eating a meal without the main course. Yes, there is a changed diplomatic tone in Washington (if no results yet) and a new economic environment associated with the president’s economic stimulus package (again, with no results yet), And there are promises of major changes to come, ranging from a dazzling array of big-ticket issues like health care, energy, climate change, and so on. But the main course, the one topic of real importance to any major trading crossroads like Singapore, involves international trade. On this, the television pundits have said almost nothing about where Obama is heading. Yet, the one question I’ve been asked the most since arriving here earlier this week is: What sort of change does Obama have in mind regarding his administration’s international trade agenda? And also this: What priority does the man who was elected promising that his administration would set policies based on the national interest, and not the narrower agendas of Washington’s famous protectionist lobbies, give to international trade?
Nobody knows the answers. Three months-and-counting into his term, nobody yet knows what Obama’s trade priorities really are, or where his administration is headed on trade. On one hand, the president and his top trade negotiator, Ron Kirk, seem to have begun to move away from some of the more embarrassing Obama protectionist campaign promises aimed at restricting trade flows, the most (in)famous of which was to threaten to abrogate NAFTA if the Canadians and Mexicans wouldn’t re-negotiate it to protect American jobs. But at the same time, others close to the administration, such as the red-hot protectionist Democrat from Ohio, Sen. Sherrod Brown, say they have come away from talks with the White House on the same subject, believing that the president is really on their side.
So does Leo Gerard, the president of the United Steelworkers. Gerard, who worked overtime to put Obama in the White House, has reason to think that he put the president in his pocket during the 2008 presidential campaign. Specifically, Gerard extracted a written promise that Obama, once in the White House, would be sympathetic to working with the steelworkers to roll back trade with China. And on April 20, Gerard and his Washington trade lawyer, Terrence Stewart, formally informed the president that they thought it was payback time. Now, one way or the other, the president will have to act. Either he will jump to the tune of the steel lobby, or he won’t. Specifically, the president will have to tell the world whether he is prepared to try to drive up the prices that American consumers pay for the tires they buy for their automobiles — and if he is prepared to slap on quotas to cap the amount of tires that Americans will be allowed to import from China.
Here’s what’s been going on, and what to watch for:
The case is called Consumer Tires from the People’s Republic of China. The file is now over at the U.S. International Trade Commission. In theory, the ITC commissioners could end the matter by saying that it lacked enough merits to justify sending it on to the White House for final decision. But considering the political realities associated with the political influence of the steelworkers – and their history of retribution when crossed — the commissioners are most likely to pass the buck along to the man who sits in the Oval Office. Barack Obama will be the man who will contemplate the weighty matter of how much tires from China ought to cost.
The steelworkers’ case turns on an old law from the Cold War called Sec. 421 of the Trade Act of 1974, as amended. The hoary statute originally was intended to give presidents the power to restrict imports of goods from communist countries that cause, or threaten to cause, “market disruption” to competing American producers of the products — automobile tires, in this case. Although China’s economy has come a long way from the days of Chairman Mao, the Chinese were pressed by the Clinton administration to accept the continuation of Sec. 421 as part of the political price of China’s accession to the World Trade Organization. (Such affairs used to be called unfair foreign treaty concessions.)
The steelworkers want Obama to put quotas on imported tires from China that would roll back import volumes to those of 2005. By curtailing the foreign competition, Obama would be trying to force up consumer prices of tires that are made in US tire plants, which the union calculates average more than 30 percent higher. The steelworkers imagine that Americans who buy tires complain that they are presently too cheap.
The old protectionist statute has never been popular with American presidents; think of the embarrassment associated with any presidential decision to slap on high tariffs and/or quotas, hoping to drive prices higher for US consumers. When he was president, George W. Bush wanted nothing to do with hitting China with Sec. 421 protectionist measures, rejecting petitions four times. In 2003, for example, Bush threw out a Sec. 421 petition asking him to slap on high tariffs on imports of Chinese coat hangers, on grounds that it would be unfair for him to try to drive up prices for the thousands of American entrepreneurs who run laundries. Imagine the scene: Bush sitting in the Oval Office, absorbed with his war on terrorism, wondering why he was being asked to figure out how high tariffs should be on Chinese coat hangers.
But when he sought the support of the United Steelworkers during last year’s presidential race, Obama had lesser matters to worry about: like getting himself elected president. Toward this end, the senator from Illinois wrote the steelworkers’ president, Leo Gerard, on March 26, 2008. In his letter, Obama told the USW chief what he wanted to hear. “I will insist that our agencies administer U.S. trade remedy laws as Congress intended them to operate,” Obama promised Gerard. “While the current Administration has apparently adopted an ideological aversion to using Section 421, I will decide each case on its merits.” (Subsequently, Obama made the same promise to President Cass Johnson of the National Council of Textile Organizations, who also has his eye on using Sec. 421.)
Gerard kept his end of the implied bargain. On Nov. 5, 2008, the day after Obama won the presidency, the union president issued a statement taking an important part of the credit for the victory over Republican John McCain, who had refused to play protectionist games. Gerard pointed in particular to “key battleground states where the USW mounted unprecedented outreach efforts to educate voters on key issues.” Gerard was quite clear on how diligently the USW had worked to put Obama in the White House: “The USW political campaign had more than 500 people working full-time in 31 states, mobilizing members and working families. More than 11,000 Steelworkers volunteered their time to ensure Barack Obama’s victory. The strategy included calling and speaking to more than 100,000 union members in key battlegrounds states between Labor Day and the Election. Nearly 5 million pieces of persuasive literature was (sic) mailed from USW international, district and local union offices.”
Now, in Gerard’s mind, it’s payback time.
The USW’s members include some 15,000 tire workers in nine states, close to half of the US tire industry. The union blames import competition from lower-priced Chinese tires for the closing of four US plants between 2004 and 2008 (Continental Tire operations in Kentucky and North Carolina; a Bridgestone/Firestone plant in Oklahoma City; and a Goodyear facility in Texas.) Two other tire plants are scheduled to close this year (Cooper Tire in Georgia and a Michelin operation in Alabama), according to the petition.
Asserting that Chinese tires are “priced nearly 30 percent below consumer tires from other countries” like Japan and Canada, the USW is asking Obama to impose a quota of 21 million tires from China annually, which it calculates “would return Chinese imports to their 2005 levels.”
The petition observes that such a quota “would also significantly ease the downward pressure on domestic consumer tire prices” associated with Chinese imports. The other way to phrase that, of course, is that the quotas would be meant to drive up prices of the tires that consumers buy. The petition is silent on the issue of whether American consumers would be delighted should their new president act to make them pay perhaps 30 percent more, next time they go shopping for new tires.
If the Obama administration — headed by the candidate who promised he would never permit his policies to be driven by pressure from special pleaders — will cooperate with the steel lobby to try to fix higher prices for automobile tires, future steps to drive up the prices of clothing from China would logically follow. Hey, maybe even the domestic coat-hanger lobby might get a second chance, with Obama in the White House.
Perhaps the good news, at least from a somewhat cynical point of view, is that if Obama would act to roll back imports of tires from China, or clothes, or whatever, producers of such things from other countries would happily step in to fill the vacuum. Somehow, when protectionist passions run hot, such practical realities of supply-and-demand economics, and whether the protectionism will actually work as intended, tend to be overlooked.
As a visiting American, it has been somewhat uncomfortable trying to explain to people here in Singapore why, on his 100th day in office, my country’s new president is someday soon expected to walk into the Oval Office and decide how high prices on Chinese tires ought to be. People here express surprise that the president of the United States would think about such things. In Singapore, I am reliably informed, people believe that the job of political leaders should be to promote prosperity by expanding trade, not restricting it.
And all week, they have been wondering why the American television pundits don’t better explain such things that really matter, as they gush on about Obama’s first 100 days in office.