| After everyone went home on a Friday night and | | | | protectionism, it will be devastating to the economy. |
| the news industry geared down for the weekend, | | | | China is already talking about putting tariffs on poultry |
| the White House increased the tariff on tires, | | | | and auto parts (much of which like tires come from |
| imported from China, by 35% on top of the existing | | | | Michigan.) |
| 4% tariff. | | | | 2. It raises the price of all tires |
| Why? The Steelworkers Union (the union for tire | | | | We will have to pay significantly more for the same |
| workers) convinced the White House that they | | | | quality tire we purchased in the past. This will hit the |
| needed to increase the tariff on tires to protect | | | | "working poor" especially hard; and right after the |
| 5,000 jobs in the tire industry. China has 18% of the | | | | cash for clunkers program raised the price and |
| low-cost tire market. | | | | availability of all used cars. It is a double whammy for |
| This may be good party politics (supporting your | | | | those who can afford it the least. |
| base) but it is poor economic policy and it is another | | | | 3. It reduces consumer spending on other products |
| roadblock the administration has put in the way of | | | | and services by the increased cost of tires |
| economic recovery. Lets look at who is helped by | | | | This means the economy, as measured by the Gross |
| this policy and who is hurt by it. | | | | National Product (GDP), will not increase and |
| 1. The union is helped in the short-term. | | | | employment will have to decline -in other industries- |
| The tariff will increase tire prices (some guesses are | | | | equal to the loss of revenues in the tire industry. |
| $30 to $90 per tire) which will generate money that | | | | Therefore, there will be no gain in employment only |
| can be used to keep employment at current levels or | | | | other employees displaced. The political focus should |
| increase employment. Unfortunately, this help may be | | | | be on helping the displaced tire workers get through |
| short lived because low cost tires can also be | | | | this pain and get retrained for other, more productive |
| imported from other low cost producers like | | | | work. |
| Indonesia. | | | | 4. It reduces productivity |
| 2. Tire companies are helped in the short-term. | | | | Tariffs hurt the American economy because they |
| They will be able to raise prices on the 82% of the | | | | reduce productivity (which is how wages are |
| market not imported from China. You are not going | | | | increased) because we are subsidizing an |
| to sell higher quality tires at prices below the price of | | | | unproductive industry by taking money away from |
| low quality tires. | | | | productive industries. |
| 3. The Federal Government is helped in the | | | | 5. It reduces the value of union tire workers |
| short-term. | | | | Union tire workers will suffer long-term because they |
| The government will be able to collect a 39% tariff | | | | will not be trained for a non-subsidized job. Unions |
| plus the higher excise taxes that go along with it. | | | | should be guaranteeing their members that they will |
| Looks good so far: short-term it saves jobs, | | | | be employable in the future not that they can keep |
| increases revenues and profits for the tire companies | | | | their exact job in the future. |
| and raises badly needed revenues for the Federal | | | | Regardless of the union arguments or political games, |
| Government. But the problem is that in the long-term, | | | | the net of this misdirected protectionist program |
| it does more damage than it does good. | | | | does not help tire workers. It does not create jobs |
| 1. It signals increasing protectionism. | | | | or raise wages. But it does hurt consumers and cause |
| This is exactly what we did in the Great Depression | | | | long-term damage to the economy and the dollar. |
| that resulted in extending and deepening the | | | | Plus, it opens the door to reduced trade and |
| depression. This single act will only be a speed bump | | | | increases the fear and uncertainty in the capital |
| in the economy, but if it is the start of more | | | | markets. |