The National Interest

Free traders cry wolf an awful lot. If the Doha round of world-trade talks hit a snag, trade enthusiasts fret that it is the beginning of the end. A few years ago, an Associated Press reporter wryly observed the overheated rhetoric that appears in public commentary about trade: Rubicons are crossed, crossroads are reached and red zones are breached. When the financial crisis hit a year ago, many were convinced that this was just the beginning of Smoot-Hawley II: The Sequel—and, full disclosure, I was certainly among those who were worrying.

A year after the Lehman collapse, perhaps it should be acknowledged that the global-trading system has held up better than trade enthusiasts would admit. Trade levels have declined, but the global economic contraction is to blame, not protectionism. Anti-dumping actions have skyrocketed, but these affect less than one half of one percent of the total value of imports among the G-20 economies. Back in the spring, the World Bank scolded the G-20 countries for the rise in protectionism and their broken promises on completing the Doha round. At the same time, however, they also acknowledged that the effects of these measures on trade flows have been minimal. Long story short, after a year of recession, the trading system has bent a little, but not broken. And the free traders who have warned about the Great Depression II have lost a small amount of their credibility.

Why do I bring this up? This past Friday, the Obama administration announced the decision to slap a 35 percent tariff on Chinese tire imports. True to form, free traders were incensed. The thing is, they weren’t the only ones freaking out—even the financial markets were spooked by the move.

Is this an overreaction? Won’t the WTO patch up this dispute about eighteen months from now, just as they did back in 2002, when the supposedly free-trade friendly Bush administration imposed steel tariffs? Maybe we’re just having a similar outpouring of alarmism as we did then. The world-trade system took the hit and lived to tell about it.

I want to say yes. I want to believe that the system is pretty robust. Since Obama was inaugurated, I’ve been resisting the urge to reflexively shout “protectionism.” The time to get realistic, alas, may have come.

Obama’s tire tariff isn’t your everyday sort of protectionism. It could end up causing a serious ripple effect. Due to a loophole in the 2001 agreement that allowed China to join the WTO, if any one member decides to impose safeguards on Chinese imports, all others can follow suit. It doesn’t take a genius to see how bad it could get.

As such, this trade dispute could spread more rapidly than most. Furthermore, exercising the safeguard is not a standard anti-dumping case. Its use is simply a reaction to growth in Chinese imports—not an accusation of unfair trade. Protectionists defending Obama’s action have pointed out that it’s fully legal. This is true—but so is shouting “You Lie!” during a presidential address. That doesn’t make it a good idea.

And Obama’s actions look all the more pointed because they are directed at specifically China. On the other hand, Bush’s steel tariffs, however egregious, targeted a specific economic sector, not another nation. Furthermore, the Bush administration responded to the outcry over their bout of economic nationalism by quickly diluting the tariffs’ harshest provisions.

In contrast, the Obama administration isn’t trying to save the American tire industry. Because Obama’s policy is country-specific, the administration will find it much harder to engage in diplospeak—the tariffs will either be applied against China or they won’t. The White House can’t backtrack without flip-flopping. Which bodes ill for any concessions or negotiations. This will prove to be a remarkably sticky issue when the G-20 convenes later this month in Pittsburgh.

One could argue that the country-specific nature of Obama’s action makes it less protectionist than Bush’s measures against steel. If this measure was the end of the story, that would be correct. The problem is that the story will not end here. As previously noted, other countries will seize on the U.S. action to apply their own duties against Chinese goods. And targeting the largest trading partner of the United States is hardly a modest action.

America’s use of this loophole is doubly troubling, because from China’s perspective, their WTO accession negotiations were seen as a humiliating kowtow to the Western economic powers. Here again we see how the West has stacked the WTO cards against China. But China has some cards of its own. And Beijing has already reacted quite rapidly by threatening anti-dumping duties on American poultry and auto parts. Chinese websites have been replete with calls for Beijing to sell all of its huge holdings of Treasury bonds. That won’t happen, but Chinese officials, just like American officials, have domestic interests to placate.

The chances of this round of protectionism ending here are low to non-existent. Obama’s political base isn’t Bush’s. Bush’s steel tariff fulfilled a specific campaign promise to the people of West Virginia. It wasn’t reflective of an underlying economic philosophy. And the rest of George W.’s winning coalition wasn’t comprised of protectionist steelworkers. As such, Bush’s flirtation with protectionism ended there. Anyway, everybody in his administration knew the tariff’s provisions would be overturned by the WTO eventually.

With Obama, however, this dip in the protectionism pool feels like the beginning of something much greater. Many Democrats feel warm and fluffy about protectionism, as a mechanism to improve labor standards or an ironclad guarantor of union jobs. This love affair isn’t going to stop. Thea Lee, the chief economist of the AFL-CIO, told the New York Times that “the trade decision was the president’s first down payment on his promise to more effectively enforce trade laws, and it’s very much appreciated.” Unions are already demanding additional action against Chinese steel.

And for his part, President Obama isn’t offering many comforting words. In his speech to Wall Street this week, he said that, “enforcing trade agreements is part and parcel of maintaining an open and free trading system.” Obama has been harping on trade enforcement since the campaign. The idea that better trade enforcement will correct the trade deficit or bolster America’s manufacturing base, however, is pure fantasy.

All presidential administrations engage in protectionism—it’s often the cost of pushing through other forms of trade liberalization. While the previous two administrations engaged in these kinds of actions, they could proudly point to ambitious agendas of trade liberalization as well. The Clinton administration sought to add contentious labor and environmental side agreements to its trade deals—but Clinton also spent political capital to get NAFTA and the Uruguay round through Congress. Bush imposed the steel tariffs—but his administration also secured the passage of (now expired) trade promotion authority, launched the Doha round, and completed major trade agreements with Australia and Central America. President Bush also rejected this action against Chinese tires on four separate occasions.

Barack Obama has no record of trade liberalization to fall back on when defending this measure. Indeed, this is the first major trade action his administration has taken. Based on the political reporting of this trade action, it seems clear that Obama will use trade policy as a sop to his base in order to keep them behind his major policy initiatives on health care, financial regulation, and environmental protection.

Obama has largely decided to become a domestic-policy president. His supporters, his base and the politicking of his underlings indicate things will only get worse. With the global economy in deep crisis, protectionism is a terrible way to build a recovery.

Daniel W. Drezner is a professor of international politics at the Fletcher School at Tufts University and a senior editor at The National Interest. His book, Avoiding Trivia: The Role of Strategic Planning in American Foreign Policy, was published in April by Brookings Institution Press.