Obama Likely to Curb Tire Imports from China

Don't expect the president to risk alienating organized labor, not when he needs its support for his congressional agenda.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

June 19, 2009

Organized labor is setting a test for Obama on trade with China. The United Steelworkers (USW) union is asking for protection against a surge of imported tires, calling for a reduction to the 2005 level of 21 million, down from 46 million in 2008, with an increase of no more than 5% per year through 2012. The union blames such imports for a string of plant closures since 2004, eliminating 7000 jobs.

The U.S. International Trade Commission (ITC) has already sided with the union. Odds are that it will ultimately advise the White House to impose safeguards and that U.S. Trade Representative Ron Kirk will concur. Obama will then have a 15-day window to accept or reject the recommendation.

That window will close in mid-September -- at the tail end of the legislative calendar, when Obama will need union support for his agenda the most. "You're looking at a lot of political pressure after Labor Day," says Lewis E. Leibowitz, a partner with the law firm of Hogan & Hartson.

Look for the president to go along with safeguards rather than buck organized labor. Bush routinely blocked such requests, saying they were against the national interest because of the potential damage to free trade and diplomatic relations with China. Obama pledged during the 2008 campaign he would be more open to such action. "Now will be an opportunity to see whether those laws will be enforced," says Randolph J. Stayin, a specialist in international trade with the law firm of Barnes & Thornburg.

Several leading Rust Belt Democrats -- including Ohio Gov. Ted Strickland and Sen. Sherrod Brown, Ind. Sen. Evan Bayh, Pa. Sen. Arlen Specter and Ill. Sen. Richard Durbin, Obama's former colleague -- openly support the USW's petition.

The case will set a major precedent. If Obama approves safeguards -- which could range from tariffs to quotas -- other industries will seek protection. Most cases will involve iron or steel products, but textiles and apparel, furniture and consumer goods may seek similar relief. The more often Obama says yes, the greater the likelihood that China will respond in kind.

What will make such cases particularly tempting for industries is that winning safeguards require a lower burden of proof than other types of trade cases --and thus less time-consuming and less expensive to pursue. To apply for antidumping or countervailing duties, a company must demonstrate, to the satisfaction of both the ITC and the Commerce Department, that a surge in imports caused actual injury. When asking for safeguards, the firm only needs to demonstrate -- to the ITC alone -- that such a surge took place.

In the nearer term, car manufacturers will have to shell out more for tires. The weak economy may force them to eat the expense rather than pass it along to consumers. That's the last thing automakers need right now.

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