In Steel Tariffs Show Protectionism On The Rise, I noted that 145% steel pipe and steel grating tariffs would bring a reaction from China.

Who Benefits From This?

Essentially no one. Potentially a few hundred steel workers get jobs back, but everyone using those products has to pay more. Demand will slow and price pressures will increase on everyone using those products. In aggregate, more jobs will be lost as a result of these tariffs than gained.

And that is just on the surface. Think China will not react? A nice clear message would be for China to cancel plane orders from Boeing or industrial goods from GE. Even if China is not so overt in its message, it is foolish to think there will be no repercussions over this.

The rising tide of protectionism is not a good thing. It never is.

105% Tariffs On US Chickens

Retaliation for 145% steel tariffs (on top of huge tire tariffs) has arrived: China announces anti-dumping steps on US chicken.

China announced anti-dumping duties of up to 105.4 percent Friday on imports of U.S. chicken products, adding to trade strains with Washington.

The case comes amid mutual accusations of protectionism by Beijing and Washington which both say will hurt efforts to end the global economic downturn.

A preliminary investigation concluded U.S. exports were being sold at improperly low prices that harmed Chinese competitors, the Commerce Ministry said. It said importers must post a bond until a final decision is reached.

Beijing launched the investigation in September after Washington raised duties on imports of Chinese-made tires despite vigorous opposition from China.

The two governments also are embroiled in disputes over access to each other’s markets for steel pipes, movies and books and other goods.

The chicken duties take effect Feb. 13 and apply to whole birds, chicken sausage and other products, the Commerce Ministry said. Included are chicken feet, which most Americans throw away but which are a delicacy in southern China.

Companies that appealed the ruling will pay lower duties of 43.1 percent to 80.5 percent, the ministry said. Tyson Foods Inc. will be charged the lowest rate, while Pilgrim’s Pride Corp. is at the top end of that range.

Importers that did not appeal will be charged 105.4 percent, the ministry said.

Tire Tariff Recap

This all started with tires, and the irony of tires is US manufacturers did not even want protection.

In what is widely considered a test case of the president’s union support, Obama slaps duties on tire imports from China.

U.S. President Barack Obama slapped steep additional duties on tire imports from China on Friday in a move that pleased domestic labor groups but drew a strong rebuke from Beijing.

The United Steelworkers union, which represents workers at many U.S. tire production plants, filed a petition earlier this year asking for the protection. It said a tripling of tire imports from China to about 46 million in 2008 from about 15 million in 2004 had cost more than 5,000 U.S. tire worker jobs.

The ITC had recommended starting with a 55 percent tariff that would fall to 45 percent in year two and 35 percent in year three. The steelworkers asked initially for a quota of 21 million that would grow by 5 percent each year.

Analysts expect Friday’s action to encourage other labor groups or domestic manufacturers to seek relief under Section 421, which does not require petitioners to prove unfair trade practices are responsible for a surge in imports.

No American tire manufacturer supported the case and one, Cooper Tire, publicly opposed it.

Tire Tariffs Seen And Unseen

Flashback September 14, 2009: Obama Risks Global Trade War With Misguided Tariffs

First steel, now tires. Let’s see how China responds. China might put import duties on meat hurting US farmers, or perhaps they decide to buy planes from Airbus instead of Boeing. Perhaps they simply buy fewer planes from Boeing.

For now let’s assume 5000 jobs would be “saved” by this measure. Let’s total up the gains and losses from the Tariffs.

Gains From Tire Tariffs

  • 5,000 Jobs

Losses From Tire Tariffs

  • China reduces orders for planes and/or imposes agricultural tariffs in response. China will retaliate somehow those are possible examples how.
  • Costs go up as production shifts from China to US or elsewhere.
  • Millions of US consumers temporarily have to pay unnecessarily high prices for tires as long as normal supply chains disrupted.
  • Fewer dock workers are needed as both imports from China and exports to China drop

Let’s revisit those gains. Does anyone really think 5,000 jobs are coming back to the US as a result of this action? Better yet, did we really lose 5,000 jobs in the first place as a result of tire imports from China?

Let’s explore those questions with a look at tire production.

Tire Production Before And After Tariffs

The Washington Post article As Cheaper Chinese Tires Roll In, Obama Faces an Early Trade Test has a graph of tire production. I duplicated the chart and doubled it up showing what I believe to be the before and after effects of the tariff. Annotations in blue are mine.

click on chart for sharper image

Tire workers gained nothing as manufacturing will shift somewhere else. However the price of tires is likely to rise up on account of production disruptions.

Arguably 5,000 steel workers saved jobs. However, those jobs come at the expense of higher prices on buyers and also at the expense of chicken farmers forced to bear the brunt of retaliation.

Think anything is gained by Tariffs?
Think again.

This has a chance of escalating way out of control if Obama decides to label China a currency manipulator.

Mike “Mish” Shedlock
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