Trade Wars!!

Obama's decision last Friday to impose a 35% tariff on cheap Chinese tires is getting a lot of attention, so what the heck, I might as well join the discussion. The interesting thing to me is that Bloomberg is seeing this as an opening shot across the bow to more open free trade in the future. They note that the last several Presidents before Obama took similar measures only to later promote free trade.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aldOEZ5Sk6P4

I hope they are right. And I hope the Chinese understand this is the case as they seem to be reacting not so favorably, placing auto parts and poultry under review themselves. Do you think it is a coincidence that the sales of Chinese tires in the U.S. are almost identical in $ to the sales of U.S. auto parts and poultry in China?

http://www.nakedcapitalism.com/2009/09/china-reacts-quickly-and-badly-to-tire-tariffs.html

Another interesting point here is that this move by Obama is strictly union driven. The tire companies in the U.S. did not support it and Cooper Tire openly opposed it. Obama obviously has to show his support for unions, as weak as they have become, but he also needs to consider the consequences. Auto part manufacturers and poultry farmers are no doubt not happy with their sales to China perhaps being cut off to save some jobs at U.S. tire plants. There is no easy answer here but I suspect Obama is looking to have some discourse with his counterparts in China to reach an acceptable resolution. Let's hope he succeeds, as those before him seem to have done. Not everyone thinks this will happen and sadly the alternative, as in protectionist trade wars, is not going to serve anyone.

http://globaleconomicanalysis.blogspot.com/2009/09/obama-risks-global-trade-war-with.html

Disclosures: None.