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The following article was posted on World Trade/Interactive today and can be found here.
The Obama administration could give the trade community a more definitive picture of the trade policy it intends to pursue within the next month. The president is expected to make a major address on trade sometime this fall, perhaps before a G-20 meeting in Pittsburgh in September. At about the same time, he will have to make a decision on whether to impose safeguard measures against imports of certain automobile tires from China.
Many observers believe the president’s decision in the safeguard case could set a de facto precedent for the administration’s trade policy. Congress has been preoccupied with health care and climate change and, despite scattered calls for a major overhaul, has thus done little to help formulate a comprehensive approach to trade policy. There has been little apparent movement in this area from the administration either, despite the reported completion of an internal trade policy review, which is likely due in no small measure to the fact that many of the senior positions within the federal government that influence trade policy remain unfilled. In this environment, the China safeguard case could offer some insight into which direction the administration may be heading, and as a result the issue has seen some particularly intense efforts on both sides.
The so-called Section 421 safeguard allows the U.S. to restrict imports from China if there has been a surge in imports that has caused or could cause market disruption. The Bush administration rejected all of the Section 421 petitions it received and the measure had thus been largely abandoned for several years. Shortly after President Obama took office, however, a labor union representing domestic tire manufacturing workers filed a Section 421 petition on automobile tires, claiming that the U.S. tire industry (which, somewhat unusually for a Section 421 case, did not sign on to the petition) had been injured by a significant increase in imports over the past several years. The International Trade Commission agreed by a 4-2 vote and recommended a three-year schedule of increased tariffs starting at 55% and eventually falling to 35%. The Office of the U.S. Trade Representative is currently considering the matter and must forward its recommendation (which may or may not be the same as that of the ITC) to the White House by Sept. 2. The president then has until Sept. 17 to render a final decision, which could include following the ITC’s recommendation, implementing a different remedy or taking no action at all.
There has been an enormous amount of interest in this case, and the opposing sides have been extremely active in pressing their cases. As illustrated by an Aug. 19 letter to the president from the Emergency Committee for American Trade, industry groups are concerned that any decision to restrict imports of Chinese tires could open the floodgates to safeguards against a wide range of other products, which would increase prices for businesses as well as consumers at a time when the U.S. economy continues to struggle. In addition, they say, imposing a safeguard could invite retaliatory measures from China, which has accounted for a major share of U.S. export growth in recent years, and embolden other countries to take their own steps to restrict trade, both of which could hinder a global economic recovery. Restricting imports of Chinese tires, which are primarily low-end replacement tires, is also not likely to shift production back to the U.S., where tire manufacturers are focused more on the high-end market. A safeguard could even pose safety hazards, business groups warn, if the price increases that are expected to result cause consumers to delay replacing worn-down tires.
At the same time, the president is coming under equally intense pressure from unions and other supportive groups to fulfill his campaign promises to consider Section 421 petitions on their merits and ensure a level playing field for U.S. industries. These groups claim that the domestic tire industry has lost over 5,000 jobs as imports from China have increased and that another 3,000 are in jeopardy. But the economic argument may be the least persuasive, some observers say, especially given assertions that the safeguard itself would cause the loss of thousands more jobs among companies that distribute and service Chinese-made tires. Instead, the president’s decision could turn more on political considerations: the unions provided substantial support during his campaign, and a number of congressional Democrats whose support he needs on higher priority issues such as health care and climate change have made clear that the U.S. must take a tougher line on trade with China and that they view the Section 421 petition as a test of whether the administration will in fact do that.
Given the importance of this issue, there has been some speculation that a decision could come sooner rather than later. There are deadlines of Sept. 2 for a recommendation from the USTR and Sept. 17 for a final decision from the White House, but those actions could come sooner if deemed necessary. With the president scheduled to meet with Chinese leaders in mid-September at the G-20 meeting, should he decide to grant some sort of relief in this case he may seek to do it well in advance of that meeting. Some observers say Labor Day could provide a particularly appropriate time for any announcement.
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