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Saturday, September 12, 2009

In Support of Chinese Tires Tariff

Ordinarily I would not be in favor of the significant tariffs recently supported by President Obama against the import of Chinese tires. Indeed, the argument that this 'saves American jobs'is for the most part, hogwash. It helps the American tire mfg. industry for sure but as anyone that's taken an intro macro course knows, the affects on the aggregate economy is just shifting resources from one group to another (in presumably inefficient fashion).

However, there is a legitimate argument, given the well known fact that Chinese imported tires are UNSAFE. Google chinese tires and you will find a plethora of links about recalls of Chinese tires by various States and by their own government. There is a reason their tires are so cheap, and the reason (which is the same reason why many of their products are so cheap) is because the Chinese cut safety corners in order to beat the market.

So, this tariff in this case in reality is simply a Pigou tax on a negative externality: the higher probability of lack of safety being passed on to consumers. The Chinese are not internalizing this cost, and consumers often are unaware the tires are safe at the time of purchase. So, I applaud the Obama administration for sending a signal to the Chinese, and for course-correcting a likely market failure.

I await Prof. Greg Mankiw's approval as well, since he's in bed with Pigou taxation.

101 comments:

Anonymous said...

This is probably incorrect. Tires like many other things need to meet standards. Tiers for America must meet American standards etc.

There used to be a term Jap Crap for Japanese stuff. Now Japan sets the standard for manufactured items. China will do the same eventually.

Garth said...

the problem is the 'eventually.' The incentive for Chinese businesses is all geared to producing things at lowest possible cost (which is often at odds with safety. The government supports this mantra. The Chinese need to be kicked down the road in terms of standards - and one way to do that is to enact temporary punitive tariffs on their worst industries.

Garth said...

Also, in response to Tom Bozzo at Angry Bear...point taken. Terms like 'efficiency' need to be used sparingly in context of international trade esp. since we know the losers rarely get compensated by the winners - leading to more inequality.

Tom's post:

http://angrybear.blogspot.com/2009/09/travels-of-cheap-tire-in-global-economy.html#links

Anonymous said...

I support the tariff on the Chinese 100% !George W. Bush had 4 chances ,because it had been recommended to him ! The Chinese still think he is running this country further into their debt ! They need to know President Obama is not going to let them ruin further American lives because of their neglect on the environment and towards human beings !Thet could not even be trusted to make dog food ,without casualties !They even made infant toys dangerous !Andnthey think the Americans want their tires on our cars ? They need to cut down on the amount of Saki they consume !

Kostas Stamos said...

Garth, tarrifs is the worst possible way "to kick the chinese down the road in terms of standards".

Tarrifs punish safe and unsafe chinese tires the same. It essentially gives an unfair advantage to unsafe chinese tires, since they now only compete at their own (less safety-driven) market, instead of the supposedly more strict american one.

A good example is chinese cars exported to Europe. Almost all chinese cars initially scored very low at crash tests, which has until now doomed their acceptance at the european market. So they have recently made great strides to build safer cars, and some companies have lately achieved respectable results.

So this is the market combined with safety standards at its best: unsafe cars are singled out and avoided, forcing some companies to improve.

What good could a tariff do that would treat all chinese products the same? So please drop the argument that the tariffs have anything to do with safety: it's ridiculous. Anonymous is much more honest here: Tariff support is based on nationalism and a misguided attempt to protect an inferior industry (causing more harm than good).

Garth said...

Kostas,

I'm sorry you find the argument ridiculous. I will not drop it for 2 reasons: (i)because I don't want to, and (ii)I disagree with you.

When you show me statistics that supports all the following arguments, I'll concede the issue to you:

(i) China does not manipulate its currency causing its export sectors to grow abnormally, leading to import surges

(ii)The vast majority of Chinese tires are safe

(iii)Chinese government / industry intends to change its ways of thinking about sacrificing all quality for low cost, at all costs

(iV) Broad regulation is more likely to incentivize China to change its behavior than a punitive tariff.

... You see I don't think any of the above 4 are true. But if you can find evidence to suggest they are, then I'll agree with you.

Kostas Stamos said...

I have left a comment in your next post, as it is essentially the same discussion.

Sorry if my post above seemed a bit impolite, but tariffs do get under my skin (it must be the tribal tone of their defenders' arguments such as anonymous above).

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Maxxis tyres said...

Cheaper tires don’t mean that it’s not safe. There are cheaper tires and rims that passed the quality control before distribution. They have to follow certain rules of safety and quality before sending it to market. It is for the user or buyer to whether or not to buy the cheaper or the first class one. It is upon their budget. But it’s good to know that there are cheaper tires and rims online and fitting centre that offer comprehensive services. Better to check it out.

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Clark Adams said...

There has to be some flaw in their certification, don't you think? Well, at least that what I see. A good product certification procedure should be followed step by step. None of the steps mentioned in the certification stage shouldn't be skipped. I like the idea of adding tariff on imported Chinese tires. I've tried looking it up in Google, and I've been faced with a lot of issues just on the front page of the results. The standards governing body should really be strict on the certification.

Get this: one anonymous commenter said that China will reach the status of being the world's standard setter eventually. Let's take software on cellphones as an example. Sure, China has their own design to their mobile firmware, but when are they going to make their own from scratch without using any foreign firmware as basis, right? If they're going to be the trendsetters, they have to start making something from scratch.

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Ujiva Nelson said...

This blog reveals a very important fat to me that Chinese tires are unsafe as they cut safety corners, so I guess the tariffs imposed by US are justified.
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Seth said...

Given that the US Gov't has just recently imposed NEW tire tariffs on Chinese Imported tires what are your thoughts now since we have already undergone one set of tariffs that ended in Sept/Oct. 2013?