Bob Ulrich

Editor

Bob Ulrich was named Modern Tire Dealer editor in August 2000. He joined the magazine in 1985 as assistant editor, and has been responsible for gathering statistical information for MTD's "Facts Issue" since 1993. He has won numerous awards for editorial and feature writing, including five gold medals from the International Automotive Media Association. Bob earned a B.A. in English literature from Ohio Northern University and has a law degree from the University of Akron.

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Here's how tariffs on Chinese tires will affect tire dealers

By: Bob Ulrich

How will additional tariffs on consumer tires imported from China affect tire dealers in the United States? Let's see if we can figure it out.

Close to 47 million passenger and light truck tires were imported from China in 2008. The general rate of duty on radial consumer tires is 4% of the U.S. Customs value.

The International Trade Commission (ITC), in response to a petition filed by the United Steelworkers asking for limits on Chinese imports, agreed that something needed to be done, but that increasing tariffs on the imports was the better way to go. (See "ITC announces remedies in Chinese tire import case," June 29, 2009.)

The ITC proposes duties on the tires be increased by 55% the first year, 45% the second year and 35% the third year. By the end of the third year, the ITC implies, the market will be back to normal, so no additional tariffs will be needed.

Say your customer needs a size 175/70R13 tire. You have a Goodride brand tire for $49.95, and a Kelly Explorer for $59. Assuming a 20% margin on the tire because it is a low-cost radial, the tire originally cost you $41.62.

Unless the tire was purchased directly from the factory in China, the broker or wholesaler charged at least an extra 10%. So prior to that, it cost $37.84.

Take out the 4% duty, and the tire came over at $36.38.

Now add in the 55% duty in 2010. The 55% duty will add at least another $20 to the tire. Unless those gross margins are reduced, the tire will cost the consumer close to $70. That Kelly tire sure looks good to price shoppers by comparison.

Although President Obama still can make changes to the ITC's proposal, he probably won't tweak it too much, even though China is not happy with the decision.

We know what you will do. According to Modern Tire Dealer's recent "Made in China" tire survey, 80% of the respondents said that if selling tires from China became cost prohibitive, they would source tires from other countries. I know manufacturers in India are ramping up production.

What happens when the union, which claimed that the massive increase in Chinese consumer tire imports (221% from 2004-2008) directly resulted in lost jobs in the U.S., bears witness to continued decreases in our tire manufacturing base over the next three years? Will it take on imports from other countries, maybe even Canada and Mexico? Or will it look in the mirror? Time will tell.

Related Topics: Chinese imports, International Trade Commission, USW

comments

1. Richard | July 06, 2009 at 10:52PM
   Over 20 million tires from China are bearing the brands of Hankook, Kumho, Federal, and Chengshin/Maxxis. If tariffs were imposed on Chinese tires, such manufacturers would easily convert the supply from China to Korea or Taiwan. So USW will still face the flooding import tires. The situation will not change at all!

2. Tony | July 08, 2009 at 01:16AM
   Agree, with Richard. Definitely not a long-term solution. What this will however accomplish will be a slow down in the rampant investment in new equipment by Chinese factories. More investment resulting in a flood of even cheaper Chinese tires. Good for US factories, not good for US retailers or consumers.

3. gus | July 30, 2009 at 10:08AM
   Globalization-the opportunity to supply low cost PCR to the US will shift from China to Vietnam, India, Turkey, Brazil or wherever low cost labor is available. The investments in those countries will first be made by (western) companies, but we will see India, China and others manufacturing in low labor cost developing nations.
   
   The unions might better benefit by developing and organizing in those emerging markets. How about the United Steelworkers of Lao People’s Democratic Republic Local #106.
   
   

4. jim | September 08, 2009 at 03:17PM
   All tariffs should be based on the wage paid to produce and the energy used , this would even it to all. The U.S. has seen to many jobs going over seas , soon we wont even be able to pay for any tires no one will have a job in the private sector.

5. Thomas | September 12, 2009 at 08:43AM
   As the president lowered the rate of the tariffs on tires from China, why didn't he go with what was first proposed? Until, the United States gets behind the "Made in USA" slogan, we will never get out of this recession. What saved us in the great depression era, was the fact that we were an industrialized nation. We put people to work. Buying imports just fuels the major players. Usually the product will cost more, but in turn, we as a nation will feel prouder and whole again.

6. FRANK | September 26, 2009 at 04:08PM
   proud doesnt pay the bills pal.
   
   tarrifs should have been done along time ago on all imports... tax across the board.
   
   try shipping brake rotors through to africa, see what they tell you. fair trade around the world? people, do your homework read up.
   
   usa will once again look like dummies. now all the wd's are going to use the excuse to "jack up" pricing on existing inventory. dont you see who this helps?
   
   think about it. its a joke. goverment isnt part of the solution in fact its part of the problem. no doubts!