Chinese consumer tire exports to the U.S. fell 40 percent in the 11 months since the U.S. government imposed stiff tariffs on them. Imports from other Asian nations mostly filled the void.
That's what the international trade numbers show. The overall impact of the tariffs isn't as clear cut, however, according to industry analysts and participants, thanks to the global recession that slammed worldwide tire demand, and big raw material price hikes.
The import tariffs on Chinese tires—levied under Section 421 of the Trade Act, which allows relief to U.S. industries injured by upsurges of imports from China—have benefited tire makers in South Korea, Taiwan, Thailand, Indonesia and Vietnam. Trade figures published in the Global Trade Atlas by Global Trade Information Services show tire exports from those nations to the U.S. soared at least 60 percent during the first nine months of the new tariffs, through June.
During that period, when tariffs on Chinese-made passenger and light truck tires rose to 39 percent from 4 percent, U.S. imports of car tires from China fell 40.6 percent to 18.8 million units. The 18.8 million units are more than 60-percent lower than the volume imported in the comparable 2008/09 period, before U.S. demand collapsed.
Imports from Taiwan doubled to 2.79 million units, while shipments from Indonesia went up 70.5 percent to 5.72 million units, from Thailand up 64.2 percent to 3.85 million and from South Korea up 63 percent to 12 million units.
Thailand's tire exports were duty-free until July 1, when they were assessed a 4-percent tariff after an annual review of the Generalized System of Trade Preferences. The United Steelworkers had asked for the change in that nation's trade status.
The tariffs will drop to 34 percent this year and 29 percent in 2011, before lapsing to the 4-percent rate in 2012. The Section 421 action was initiated in April 2009 by the USW, which represents more than 30,000 workers at tire plants in the U.S. The union blamed Chinese tire imports for the loss of more than 5,000 jobs at U.S. tire plants through year-end 2008, and another 3,000 job cuts that were scheduled through 2009.
The tariffs' effect
As the Sept. 26 date marking the first anniversary of the imposition of the tariffs approaches, the union won't discuss the impact of the duties. The Alliance for American Manufacturing, which it supports, claims the tariffs are working. It noted the price differential between American- and Chinese-made tires has decreased.
However, longtime tire industry analyst Saul Ludwig of Northcoast Research Holding L.L.C, said the tariffs aren't alone in causing the pricing change.
“Some increases resulted from the tariffs, but raw materials costs prompted some increases as well,” Ludwig said. “And inventories had been drawn down to very low levels since the recession began. When you start having poor fill rates, you crank up demand.”
East Bay Tire Co.—which imports tires from Indonesia and India as well as China—has not seen much effect from the tariffs in comparison with other factors, according to Tom Van Ormer, the company's director of purchasing and marketing.
“We've suffered more from raw materials cost increases than from the tariffs,” Van Ormer said. “When the tariffs started, most everybody said, 'Goodness gracious, what's going on?' But then most manufacturers made adjustments and ate some of the tariffs themselves. That goes across the board for everybody.”
Some of the vocal opponents of the tariffs during their consideration won't discuss the impact of the decision, such as Toyo Tire Holdings of Americas Inc. and Les Schwab Tire Centers Inc., a major tire retailer. The U.S. Trade Representative, which administers the tariffs, also didn't respond to requests for comment.
Others in the industry are debating the issue, although quietly.
“We're certainly watching the one-year mark, whereby the tariff drops by 5 percent,” said Ron Sinclair, senior vice president of marketing for Huntersville, N.C.-based American Tire Distributors Holdings Inc. “We haven't seen any formal actions or announcements from our manufacturers as to how they'll handle that.”
Hankook Tire America Corp., which imports tires made by its South Korean parent, said it continues to bring some passenger and light truck tires from its plants in China to the U.S. market. But most of the production shifted to manufacturing facilities in South Korea.
Hankook said it has adjusted prices in reaction to market conditions that impacted its costs, including raw material and transportation expenses, and the tariffs.
Questions about numbers
The Tire Industry Association, which led the opposition to the tariffs along with several of its major distributor members, has had trouble quantifying the impact of the tariffs.
“The biggest problem for us is that all the information we have is anecdotal,” said Paul Fiore, director of government and business relations for TIA. “What's missing from the discussion is that USTR has not been forthcoming with their efforts on data collecting.”
The USTR is required to gather information on the impact of the tariffs on the domestic tire industry. However, Fiore said, this is the first successful Section 421 action, and the first time USTR has had to gather such data.
TIA doesn't collect data itself. Fiore said the association would like to know how much wholesale and retail prices have gone up as a result of the tariffs.
“More importantly, we'd like to know what the picture is pertaining to jobs,” he said. “Unfortunately, the trade representative made a fairly general statement about saving jobs because of the tariffs, and when I challenged this, they sent a reply that was all spin.”
Supply disruptions that appeared at the time of the ITC hearings have lessened, according to Jim Mayfield, president of private-brand tire marketer Del-Nat Tire Corp. He said that, like other companies, Del-Nat turned to its overseas manufacturers to fill its needs.
Prices from suppliers are running about 25 to 28 percent higher now than before the tariffs, Mayfield said. “But the price increases since last summer were caused by more than just the tariffs. Some of them were caused by the raw materials price increases we've seen since the end of 2009.”
Del-Nat has reduced its work force—a combination of warehouse and office staff—by about 10 percent since the tariffs began, he said.
As for domestic tire production, “whatever production increases they've made have not benefited private branders like Del-Nat at all,” he said.
GITI Tire (USA) Ltd., the Rancho Cucamonga, Calif.-based marketing subsidiary of Singapore-based Chinese tire manufacturer GITI Tire Pte. Ltd., testified strongly against the tariffs at ITC and USTR hearings last year.
Dealing with the tariffs has proved difficult but not impossible for GITI, according to Tom McNamara, the company's vice president of sales.
“We only passed on a 15-percent price increase, absorbing the remaining 20 percent,” McNamara said. “When competing with Korean, Japanese, Taiwanese and other worldwide products, it is definitely difficult. With raw materials prices increasing, it is becoming even more difficult.”
Another opponent of the tariffs, Cooper Tire & Rubber Co., didn't make the sweeping changes it thought it would need when the duties were imposed, according to Phil Caris, Cooper vice president of sales and marketing.
“We realized that in three years the tariff would go off, and we'd be back to where we were before,” he said.
Cooper is actually bringing more tires in from China in 2010 than in 2009, because of higher demand, Caris said. The company also was able to use some of its excess capacity in the U.S. to meet that demand, hiring some new personnel at those plants in the process.
“Some groups would like to attribute our increase in employment to the duties, but we can't say that,” he said. “There are so many different factors influencing our expansion needs.”