The Obama Tire Tax

http://online.wsj.com/article/SB10001424052970204488304574431641244584198.html

Remember that 35% tariff President Obama imposed on tires imported from China this month? American drivers will sure find it hard to forget, as the higher costs start trickling down to U.S. consumers.

Since the tariff announcement on September 11, U.S. tire wholesalers have been warning that their sales prices to retailers will increase by about 15% on average. In some cases, the hikes are as high as 28%, according to industry sources. The only reason prices haven't risen by the full 35% tariff rate yet is that wholesalers still have some pre-tariff inventory stocks in their warehouses.

Eventually, this Obama tire tax will squeeze consumers hard because wholesalers and retailers have margins too thin to absorb much of the impact themselves. It may take a few months, Bill Trimarco of Hercules Tire in Ohio told us, but the price hikes are coming.

Low-income Americans will bear the brunt of the pain because Chinese tiremakers sell the cheapest tires, retailing for about $50 a piece at the lowest. An extra $15 for two replacement tires or $30 for four—and up to $70 more once the full tariff cost hits the market—might not sound like much. But for Americans scraping by on tight budgets, or who have lost their jobs in the recession, that amounts to school supplies for the kids, some new clothes or a tank or two of gasoline. Or consumers can just take the safety risk of driving a little longer on worn-out tires before replacing them.

Mr. Obama's political sop to the United Steelworkers union that requested this tire protectionism will be expensive for the economy overall, too. Rutgers economist Thomas J. Prusa, who had estimated the potential impacts of tariffs at the request of tire importers, calculates that the 35% tariff will cost the economy about 20,000 jobs in the tire distribution and retail sector while "saving" only 1,000 jobs at domestic manufacturing plants. U.S. consumers will pay $330,000 in higher tire prices for each of those 1,000 jobs.

Perhaps Mr. Obama thought setting the rate at 35% would be a good compromise since the International Trade Commission had proposed a tariff of 55%. The reality is that industry margins are so thin and consumer budgets are so tight that even a 35% tariff will hurt the economy. Mr. Obama's first big trade-policy call is turning out to be a very expensive mistake.