WASHINGTON (Oct. 4, 2012)—After three years, the tariffs on Chinese tires are history.
Sept. 26 was the official end date for the tariffs, levied under Section 421 of the Trade Act after a petition for relief by the United Steelworkers union.
The end of the tariffs has spawned reports of Chinese tire factories gearing up to meet demand, as well as speculation from industry analysts that U.S. tire prices could come down sharply in the foreseeable future.
Tire makers and distributors, meanwhile, say they prepared some time ago for the foreseeable end of the tariffs.
In the first year, the tariffs on Chinese-made passenger and light truck tires totaled 39 percent. They dropped 34 percent in their second year and 29 percent in their third. At midnight Sept. 26, the duties reverted to their traditional level of 4 percent.
There was some last-minute speculation that President Obama would extend the tariffs. However, a request from the USW would have made an extension much more likely, and the union affirmed that it would not make such a request.
The union decided not to ask for an extension after it found out the U.S. might have to pay reparations to China, said Leo W. Gerard, USW International president.
Gerard praised the tariffs as a boon to U.S. tire manufacturers and workers.
“Since his decision, by every measure, success has been achieved,” Mr. Gerard said. “Jobs have been retained and created, production has rebounded, investments in plant and equipment have been made and many companies have returned to profitability. That's why the law was enacted, and it worked.”
Other sources, however, are more doubtful about the effects of the tariffs. BB&T Capital Markets issued a report Sept. 26 saying it believed the tariffs led to a 10- to 15-percent increase in U.S. tire prices, which combined with higher raw materials costs to raise prices a total of 10 to 20 percent during the three-year period.
“General industry feedback and political claims from the Obama administration would place the job savings from the program at roughly 1,000 to 1,200, while the incremental cost to the U.S. consumer has been estimated at roughly $1 billion,” BB&T said.
The Tire Industry Association opposed the tariffs from the beginning. All available evidence shows that TIA was right, according to Roy Littlefield, TIA executive vice president.
“You look at the import, and imports did not go down,” Mr. Littlefield said. “Instead of coming from China, they came from Korea, Indonesia, Thailand.”
TIA has no way of calculating the effect the tariffs had on jobs within its member companies, according to Mr. Littlefield. “But they certainly had an impact on distributors, importers, buying groups and dealers,” he said. “They added a whole new layer of complications.”
What the future will bring
The BB&T report said consumers could expect a drop in tire prices of 10 to 20 percent beginning in the fourth quarter of 2012, with the steepest decreases in the lower end of the market.
During the tariff period, some buying groups continued to import Chinese tires under a free trade program and stockpile them in anticipation of the tariffs' end, according to Littlefield.
“We still have to see how it plays out, but I think you'll see some Chinese tires being sold at very competitive prices,” he said.
One company that never stopped importing Chinese tires was Del-Nat Tire Corp., the Memphis, Tenn.-based private brand company.
“With the end of the tariffs, we'll have a better delineation between our entry-level, mid-level and premium tires,” said Jim Mayfield, Del-Nat president.
“We've been subsidizing entry-level products for quite some time,” Mayfield said. “Now we won't have to do that.”
The end of the tariffs means that Del-Nat will buy more tires from China, but it will continue to purchase as many tires as before from its domestic supplier, he said.
For Foreign Tire Sales, the Union, N.J.-based tire importer, the time of the tariffs was a tough period, according to Richard Kuskin, FTS president.
“Our sole supply of passenger and commercial tires comes from China,” said Kuskin, who said FTS survived during the period mainly by reducing its overhead.
Kuskin said tire manufacturers in Asian countries other than China would feel the greatest impact from the end of the tariffs, with South Korea a possible exception. “Korea has large factories, but its equipment is not as modern as China's,” he said.
Among domestic tire manufacturers, Goodyear said the tariffs had little effect on them. “The vast majority of tires that we sell in North America, we also make in North America,” a Goodyear spokesman said.
Bridgestone Americas also accepted the tariffs and the end of the tariffs with equanimity, a Bridgestone spokesman said.
“As it stands right now, we have been prepared for three years,” the spokesman said. “We have made the proper adjustments. Our stand now is just to watch the market and react as needed.”
Meanwhile, news came from China's Shandong Province that the tire manufacturers there—including Triangle Group, Shandong Linglong Rubber Co. Ltd. and Shandong Sailun Tire Co. Ltd.—were gearing up to resume making tires for the U.S. market.