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Is Obama’s Chinese Tire Tariff Good for U.S. Consumers?

obama tire tariffIn 2009, the Obama administration took hard action against China when it imposed a tariff against the Asian country for exporting what it deemed to be cheap and low-quality tires to the United States for American consumers to purchase and use. Obama’s thinking behind it is that by eliminating attractive competitor tires from China, American jobs would be saved and more secured. President Obama’s decision to tax Chinese tires was upheld by the World Trade Organization.

Regarding the tire tariff, however, the question remains as to how good it truly is for American consumers. And, depending on which political party that you ask, you’ll receive two different answers. A case in point example is when President Obama and candidate Mitt Romney hit the campaign trail prior to the 2012 election, where they sparred on a variety of topics – including foreign policy. The tire tariff actually was discussed in the two candidates’ debate on foreign policy prior to the election.

With that said, here’s a look at both the pros and cons of the Chinese tire tariff, from political parties and economists, so that you can make a decision for yourself on whether or not it’s good for U.S. consumers:

The Pros

  • From a consumer’s standpoint, the greatest benefit of the Chinese tire tariff is that they were assured they wouldn’t be purchasing low-quality tires. As we noted in the opening, the main reason these Chinese tires were banned from the U.S. was for their low quality and subsequently low cost.
  • Since the U.S. tire industry hit its peak in 2000, employing some 86,800 people, the industry as a whole has been on the decline. A part of this is unquestionably due to the lagging economy and auto industry struggles over that period of time, but Obama’s tariff did show evidence of increasing domestic tire jobs. According to Forbes, 51,600 were employed by tire manufacturers before the tariff became effective and this number rose to 51,700 following enforcement of the tariff. Other studies show that this gain was much greater; increasing adding as much as 1,200 jobs to the economy.

The Cons

  • While the tire tariff did lead to an increase in domestic tire jobs – albeit marginally – economists are split on what actually is responsible for that growth: the tariff or the re-emergence of the auto industry around the time the tariff was put into effect.
  • Aside from the Republican Party, most economists agree that this tariff was a bad deal for American consumers. For instance, in a study from the Peterson Institute, economists discovered that employment in the U.S. tire sector grew by 1,200 – but that this is the maximum number of jobs that were likely to be protected. They also cite the fact that the domestic tire industry was on the upswing. The consensus seems to be that eliminating trade from China – and potentially damaging future foreign relations with the country – was a moot point for just 1,200 jobs.
  • The tariff also means that domestic tire manufacturers were able to charge higher prices for tires, being as that they weren’t competing with low-cost Chinese tires any longer. So, from a consumer perspective, it meant that they were paying more for tires – which are already expensive.
  • “Protection stifles productivity.” That was Romney’s big argument against the tire tariffs, because as jobs and domestic companies were protected, there was no inherent threat. Without competition, there’s no true sense of urgency to make a product better.
  • Economists state that the biggest beneficiaries of the Chinese tire tariff haven’t been consumers, but other countries who also export low-cost tires to the United States, such as Mexico and other Asian countries.

So is the Chinese tire tariff a raw deal for American consumers? It all really depends on who you ask. While economists and the Republican political party seem to think that this isn’t a great deal for American drivers, the Democratic Party and people directly involved in the tire industry seem to think it is.

Was this a bad deal for the United States? Tell us what you think in the comments section below.

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