Nearly one year ago, President Obama invoked a trade law known as “421” for the first and only time in the decade the law has been in effect and imposed tariffs on some automobile tire imports from China, which have been surging into the United States from 2004 to 2008.
The decision was very controversial. Most editorials weighed in against it, the Chinese government threatened retaliation, and some of the more hysterical pundits predicted a death-spiral trade war. The Chinese government, the outsourcing lobby, and the large school of free trade economists all predicted that the relief would not accomplish its goal of reviving production, jobs, and market share for American-made tires in the domestic market.
I’m pleased to report to you that these skeptics were all dreadfully wrong. The sky hasn’t fallen. A trade war never materialized. And, America’s tire workers and domestic facilities are recording gains in jobs, production, and market share.
First, let’s review where the domestic tire industry stood at the end of 2008:
• production declined from 218.4 million tires to 160.3 million tires during 2004-2008;
• capacity utilization declined from 96.3% to 86.0% during 2004-2008;
• U.S. producer commercial U.S. shipments declined from 194.7 million tires to 136.8 million tires during 2004-2008;
• employment data on number of production workers, hours worked, and wages all declined substantially between 2004 and 2008; and,
• consumer tire imports from China increased 215 percent by volume (from 14.57 million tires to 45.98 million tires) and nearly 300 percent by value (from $453 million to $1.788 billion) between 2004 and 2008.
Now, what has happened since the relief took effect? Publicly available data compiled in a report released by the Alliance for American Manufacturing on September 1 concludes that production by U.S. facilities has increased over 15 percent, or by more than 10 million tires, based on Rubber Manufacturing Association data. Domestic producers such as Goodyear and Cooper Tires have experienced productions gains of between 9 and 35 percent.
Employment and overtime at plants producing the tires that compete with Chinese imports is also up. For instance, workers at Michelin plants making the brands BF Goodrich and Uniroyal are working 7 days a week at around 15 percent overtime; these facilities—which directly compete with the Chinese tires subject to the tariffs—have brought on 115 new production workers since the beginning of 2010. The story is the same at Cooper Tire & Rubber in Findlay, Ohio, where 100 new hourly employees have been hired, as well as additional salaried workers. At another Cooper Tire plant in Texarkana, Arkansas, there have been 250 new hourly hires since the relief went into effect. The plant’s operations are running 7 days a week and production is up approximately 20 percent. Goodyear is recording similar employment gains at some of its facilities that compete with the Chinese imports.
At the same time, imports from China, which had been surging in the 2004-2008 period declined 34.2 percent in the first six months after relief was provided and are ranging from 6.4 – 7.6 million tires for the three quarters since relief. Total imports (including China) increased slightly during the first six months of import relief on Chinese products. The International Trade Commission (ITC) had predicted this: both domestic producers and non-Chinese imports were projected to gain volume lost by the Chinese. However, during the first six months after relief was granted, the domestic industry has regained market share of total apparent consumption.
We can draw several lessons from this tire case. First, trade enforcement works. We should do lots more of it. Second, punishing China for its mercantilism is the only approach that achieves results. We will never sweet talk China into playing by the rules. Third, all the editorial writers, pundits, and think tank “experts” who predicted the worst should critically examine each trade case on its merits, rather than merely parroting the “free trade always works” nonsense while engaging in irresponsible hysteria about trade wars and such.
Thank you, Mr. President, for honoring your word on trade enforcement and putting America’s tire workers back on the job.
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