CLEVELAND (Sept. 22, 2009)—U.S. tariffs on Chinese passenger and light truck imports generally will be “a positive for the domestic tire industry,” according to a top industry analyst.
“Today the landed cost of a Chinese tire is 10-15 percent lower than an equivalent U.S.-produced tire, so the imposition of a 35-percent tariff will make Chinese tires more expensive as selling prices for Chinese tires will probably increase,” said Saul Ludwig of KeyBanc Capital Markets Inc. in his Sept. 13 “Quick Alert” for investors. The U.S. could well see short supplies and higher prices in tires, even if imports from other low-cost countries increase, he said.
What is still unclear, however, is how the Chinese government will react to the tariffs, Ludwig said. It is possible it will grant an export tax credit on Chinese tires to offset the tariffs, or else increase imports to Europe, he said.
Ludwig, an expert on both Goodyear and Cooper Tire & Rubber Co., said Goodyear—which imports less than 2 percent of its tires from China—should be a big winner under the tariffs as it moves to utilize its North American capacity more effectively.
Cooper, which opposed the tariffs, is in a more ambiguous position, according to Ludwig. The tire maker planned to import only 8 or 9 percent of its U.S. supply from China, so its domestic plants should benefit in both volume and price.
However, Cooper has the problem of the plant in Kunshan, China, near Shanghai, in which it shares ownership with Taiwan's Kenda Rubber Industrial Co. Ltd. The $200 million passenger and light truck tire plant was constructed as a joint venture between the two companies. (The two tire makers ended their marketing and distribution arrangement with the Kenda brand in the U.S. and Canada, effective May 1, when Kenda resumed responsibility for sales and marketing, distribution and customer service for the brand.)
Ludwig said that plant was supposed to export all its output to the U.S.
Cooper can either divert the Cooper-Kenda production to Europe and elsewhere or continue to export them to the U.S. and pay the tariff, Ludwig said. “Selling those tires in China is not likely, as the plant was commissioned as a 100-percent export facility.”