President Obama slapped a duty on Chinese made tires on Friday, which looks like it will set off a trade war. The Financial Times reports:
In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers.
Chen Deming, China’s minister of commerce, condemned the decision, saying that it “sends the wrong signal to the world” at a time when Washington and Beijing should be co-operating to deal with the worst economic and financial crisis in decades.
The Financial Times quotes Eswar Prasad, a trade professor at Cornell on the potential impact of the U.S. imposed tarriff: “These protectionist measures, some of which amount to domestic political posturing rather than substantive restraints on trade, could easily ratchet up into a full-blown trade war and inflict serious economic damage on both countries.”
When it comes to trade, too many only look at one side of the ledger: the job losses caused by outside manufacturers producing lower cost goods and driving U.S. manufacturers out of business. Yet the U.S. wins more than it loses from trade: we have more markets in which to sell our own products and we save money, which can then be put to other uses, by buying cheaper products from elsewhere. Encouraging the closing of markets around the world is exactly the opposite of what we should be doing in the midst of a recession.