Will there be a price war when the tariffs on Chinese consumer tire imports are eliminated?

Bob Ulrich
Posted on July 28, 2011

Don Mathis has been buying tires from Asian manufacturers for a very long time, China in particular since 1998. As president of DM Marketing LLC, the industry veteran still brings buyers in the United States together with tires made in Asia.

That includes Atturo, an ultra-high performance SUV and sport truck tire brand manufactured in Taiwan.

So when Mathis recently sent Modern Tire Dealer his views on the U.S. tire tariffs on consumer tire imports from China, I read it with interest. He speculates on what will happen when the 25% tariff is lifted on Sept. 26, 2012 (that is what it will be when it drops from 30% on Sept. 26, 2011). The tariffs were implemented in 2009 (see "President sets first-year tariffs at 35%").

Here is his letter as it pertains to the tariff issue, in its entirety, with light editing.

"I have been dealing with China since middle 1998. At one point I worked for a major Chinese company for a year, and consulted with them after that. My China product sales at one point reached some 50,000 pieces a month.

"Immediately after the 35% duty add-on, it dropped to 2,000 to 3,000 pieces a month average: some months in a row zero, some months 4,000 to 5,000. Today, it barely averages 3,500.

"Many (U.S.) companys have swallowed the increases, as even with 35% on the top, they still need tires, and the U.S. either does not make (them) or is still higher.  But stay tuned for mid-2012.

"My perception is that around April, at least in May and June, near 100% (of the U.S.) companies will stop placing monthly production orders, waiting for the rest of the absurd, union-supporting, thanks-to-Obama duty to go away in September. The Chinese are very much a keep-the-factories-running country. No orders will not stop them from making tires. (It will) just stop tires from being shipped for two to three, maybe up to four months.

"And then the flood gates will open, and the world will see a price war like never before in history. Prices will drop like a lead balloon. (There) will be total chaos, and will be some repositioning of Chinese exporters. I expect some casualties.

"China, still today, continues to build and build new plants (and) expand production of old ones, even in the UHP market -- which 10 years ago was the faster growth segment, but today is, at best, growing slowly (and), worst case, is flat. Especially the very small, top-end segment, 28 inches and 30 inches for SUVs.

"Despite being told otherwise, many China companies still plan to increase production of 28- and 30-inch tires. I think there are enough 28-inch tires in the world today -- between (those) sitting in China that no one will buy to (those) in U.S. warehouses being sold for no, or small, profits -- to supply the U.S.needs for the next five years. Thirty-inch tires are today cheaper than they were prior the 35% (tariff).

"There will be a short window of great opportunity for dealers who manage their inventory around July–August to the middle of September, as some companies will run out of sizes, waiting for the duty to go away."

I definitely think Mathis' scenario has merit. However, I temper his thoughts with those of a tire company CEO with whom I talked the other day.

He believes tire prices will go up in China, requiring similar increases on imports to the U.S. There may be a lowering of prices, but not the price war Mathis is predicting.

The government is the wild card in all this. Do our leaders want to keep the tariffs high? And next year is an election year. How will that affect any decisions made?

What do you think will happen?

Related Topics: Don Mathis, SUV tires, tire prices, tire tariffs

Bob Ulrich Editor
Comments ( 2 )
  • See all comments
  • Steve

     | about 6 years ago

    An overly optimistic 5 year forecast by the RMA, lots of capacity ramp ups in the works and the tariff on Chinese tires falling off. It's going to be a perfect storm. Batten down the hatches and hang on.

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