October 16, 2009
How our world changed in five months
Union petition leads to sizable tariffs on Chinese consumer tire imports
By: Bob Ulrich
In 2000, Congress passed a China-specific addendum to the Trade Act of 1974. The statute, Section 421, gives domestic manufacturers a safeguard against an increase in Chinese imports that leads to a “market disruption.”
President Barack Obama determined that the increase in Chinese consumer tire imports over the last five years was a disrupting force that required remedy. Subsequently, in accordance with the provisions of Section 421, he increased existing duties by the following percentages: 35% for the first year, 30% for the second year, and 25% for the third year.
The tariffs went into effect Sept. 26. They are in addition to the general rate of duty on radial passenger and light truck tire imports, which is 4% of the United States Customs value.
China imports more consumer tires into the U.S. than any other country. Canada is second, followed by Japan and South Korea.
From 2004 through 2008, passenger and light truck tire imports from China to the U.S. rose from 14.6 million units to 46.2 million units, a 216% increase, according to Modern Tire Dealer research. Chinese imports represented nearly 17% of the domestic consumer replacement and original equipment shipments in 2008.
The United Steelworkers (USW) union believes this “import surge” led to thousands of job losses and six plant closings in the U.S. That is why it petitioned the U.S. International Trade Commission (ITC) for relief on April 20, 2009. The ITC proposed additional tariffs of 55%, 45% and 35%, respectively.
“When the USW filed its trade case, it asked that relief be provided in the form of quotas,” says USW International Vice President Tom Conway. “The International Trade Commission agreed with the USW’s view as to the nature of China’s surging exports, but decided that relief in the form of tariffs would best respond to China’s actions.
“Despite imposing a different remedy than recommended by the ITC, we are optimistic that the step taken by the president will provide real, effective relief.”
Bill Trimarco, CEO of Hercules Tire & Rubber Co., does not share that optimism.
“We believe this policy is anti-American consumer, bad for our industry and, quite frankly, unfair to the Chinese because it’s not based on any wrongdoing on the part of Chinese producers.”
Industry analyst Saul Ludwig, a managing director with KeyBanc Capital Markets, says any curtailment of Chinese exports could lead to tire shortages and higher prices for tires in the U.S., even if imports from other low-cost countries increase. However, in general, he sees this as a positive for the domestic tire industry.
“What remains to be seen, however, is what counter-measures, if any, are taken against the tire industry by the Chinese government, which was infuriated by this action of President Obama,” he says.
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