My column at American Issues Project is about President Obama’s Chinese tire tariff. Nothing good will come of it. It’s not only poorly timed, but it shouldn’t have been applied at all. Here’s a portion:
American consumers are going to take a big hit with this tariff. The price of tires will necessarily go up. The Wall Street Journal believes they will increase by as much as 30 percent and notes this price increase will affect the low-end priced tires. At a time when Americans are looking to save money where ever they can, this increase will hurt. Tires are not a luxury item that consumers can cut from their budgets and not be affected. People need to get to work, so if a tire goes flat it must replaced. If a tire that normally costs $100 goes up to $130, this can impact a family’s budget. Increased prices on necessities mean less money to spend on other goods and services. The increased price also leads to an issue that the president probably hasn’t considered: safety. Some consumers may choose to drive longer than they should on balding tires in an effort to stretch their dollars further.
It has been consistently argued that America and China need each other, which, historically, is true. China buys our debt, and in exchange Americans purchase billions of dollars of Chinese products. Circumstances are changing, however. China may not need us as much as we think.
While the United States flounders in a lingering recession as a result of unending debt and America’s unemployment rate approaches double digits, China’s economy and its middle class are exploding. By 2020, China’s middle class will reach 700 million people. That is a huge number of Chinese consumers who can buy Chinese made products. Additionally, the markets and economies in Asia seem to be rebounding faster from the global recession than the West, opening up alternate markets for Chinese and Asian made products. This can create a “decoupling” effect from Western markets. While some have dismissed the theory of “decoupling,” market analyst Peter Schiff, who correctly predicted the global meltdown in the face of much ridicule of other analysts, says it is real. In fact, the theory is is gaining new traction as leading economic indicators show that Asia’s economy is growing while the West’s is stagnating. If Schiff is correct and decoupling is taking place, this tells us that China may not need America as much as much as it has in the past.
Unfortunately, we have put ourselves in a finanicial situation where we need China. With all the debt President Obama is incurring and the additional debt he wants to incur with his trillion dollar health care reform and cap and trade plans, we are not in the best financial position to turn around and apply tariffs on Chinese goods. As China’s economy in particular and Asia’s economy in general continue to grow, China could respond by not funding any more of our debt. It also could just as easily sell its holdings of US treasuries, which it threatened to do in 2007. We already know China is looking to diversify away from US dollars. Just last month, China sold $38 billion in treasuries. Obama’s tariff may encourage them to diversify even further.
Read all of it. If you have any thoughts on Obama’s first act regarding free, or should I say not so free, trade, please leave a comment here or at the article itself. While you’re at AIP, be sure to stop by and read the other columns and blog posts. Matt Margolis asks if Obama will sign a bill that defunds ACORN, Jimmie Bise comments on Tom Harkin’s exercise in semantics. Lorie Byrd explains why every American should be concerned about the ACORN scandal. TJ Brown is absolutely right when he says government made “rights” undermine our freedoms.