Beware Politicians Bearing Election-Year Trade Deals
Nothing engenders bipartisan harmony like the opportunity to slap duties on Asian imports—and to claim that doing so protects American jobs. On March 5, the Senate reaffirmed the right of the U.S. Department of Commerce to continue imposing anti-dumping duties on two dozen subsidized goods from China, Vietnam, and other state-run economies. A day later, the measure sailed through the House 370-39. Then the bloviating began. “China doesn’t get a free pass to violate the rules at the expense of American jobs,” said Max Baucus (D-Mont.), the bill’s co-sponsor in the Senate. Vice President Joe Biden added: “By passing this law, Congress has taken a clear stand against the unfair trade practices that have put countless American jobs in jeopardy.”
Baucus and others justify the tariffs because China and Vietnam are non-market economies that subsidize their exports to the U.S. The lawmakers acted in response to a December ruling by a federal appeals court in Washington, D.C., that said Congress didn’t have the authority to levy the duties. This being an election year, though, Baucus was quick to recycle an estimate by a lobbying group that the duties imposed since 2007 had saved 80,000 jobs.
Calculating the impact tariffs have on jobs is a complex game. A lot of the numbers that get tossed around “are hypothetical,” says Ann Harrison, a Wharton School economist who studies trade and labor markets. “Governments use them when they want to be seen to do something, when they need a quick fix.” Also, the $4.7 billion value of the imports—tires, steel, aluminum, paper, and chemicals—affected by the trade sanctions is a sliver of the $400 billion in goods the U.S. bought from China last year.
Baucus is citing data from the Committee to Support U.S. Trade Laws, a business lobby group. Its president, Gilbert Kaplan, calls the 80,000 figure “very, very low,” because it includes only U.S. workers directly at risk from the Asian imports targeted by the duties—not secondary supply and support jobs in the industries in question. Yet this approach assumes, for example, that an American aluminum worker who competes with the Chinese or Vietnamese would automatically lose his or her job without the tariffs in place.
It’s hard to see how the tariffs ranging from 25 percent to 35 percent that were imposed on Chinese tire imports beginning in 2009 have helped employment in the American tire industry. Three years ago tire companies operating in the U.S. employed 55,000, according to the Bureau of Labor Statistics. In 2011 that figure dropped to 51,700. Meanwhile, imports of Chinese tires fell 30 percent, while imports from other countries, including Taiwan, South Korea, Thailand, and Mexico, increased by higher percentages, the U.S. International Trade Commission says.
During his State of the Union address in January, President Barack Obama asserted that the tariffs on tires had saved 1,000 jobs. “Over a thousand Americans are working today because we stopped a surge in Chinese tires,” he said. The data doesn’t support that claim, and the tire industry sees things differently. “We found these tariffs have not created any more American jobs, but they have hindered commerce,” says Mark Cook, a spokesman for the Tire Industry Association.
Few sectors demonstrate the difficulty of linking tariffs to job creation better than steel. In 2002, President George W. Bush imposed tariffs of 8 percent to 30 percent on a variety of steel imports. The move drew support for the GOP in key swing states including West Virginia and Pennsylvania but also raised costs for U.S. carmakers and other steel-consuming companies struggling to compete on a global scale. By the end of 2003, after the World Trade Organization had ruled the steel tariffs violated its regulations, the administration dropped the duties.
A decade later, economists are still divided on whether the tariffs destroyed or salvaged manufacturing jobs. The Consuming Industries Trade Action Coalition says the steel duties cost the U.S. at least 200,000 jobs. Others say 1,700 steel industry workers were saved from a pink slip.
A free-trade agreement with South Korea that took effect on March 15 is another instance where competing sets of numbers do little but confuse things. According to the Obama administration, the trade deal is expected to create 70,000 American jobs as new markets for U.S. goods develop. The Business Roundtable calculates the gains at closer to 250,000 jobs. The Economic Policy Institute counters that the Korean pact will cost 159,000 U.S. jobs over the next seven years because of an increase in cheap imports.
Shortly after the Obama administration imposed duties on Chinese tires, Beijing levied its own tariffs on imports of U.S. chicken parts. In December, China imposed duties of as high as 22 percent on U.S.-made SUVs and large cars. On March 19, the Commerce Department will rule on whether to levy tariffs against solar panel manufacturers. According to the U.S.-China Business Council, the two countries imposed duties on each other 110 times from 1995 to 2010. Are the protectionist measures on this side of the Pacific protecting U.S. jobs? The hard numbers suggest otherwise.