The International Trade Commission (ITC) is investigating antidumping and countervailing duty claims made against companies exporting consumer tires from China to the United States.
The ITC must reach a preliminary determination on the matter by Friday, July 18, 2014, and must share its decision with the Department of Commerce no later than Friday, July 25, 2014.
The unfair trade practices petition asking for the investigation was filed by the United Steelworkers (USW), which is officially known as the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union.
According to the Federal Register (Vol. 79, No. 110), the ITC has commenced a preliminary investigation "to determine whether there is a reasonable indication" that the tire industry in the U.S. "is materially injured or threatened with material injury... by reason of imports from China of certain passenger vehicle and light truck tires." The USW is claiming, among other things, that the Chinese government is subsidizing the imports.
To read the Federal Register notice in its entirety, click here.
To read what the USW has to say about the situation, check out this link: "USW asks the government to resume tariffs."
According to the USW, imports from China have increased dramatically since the expiration of Tariff 421. In addition, domestic manufacturers have suffered a corresponding loss in market share.
Both are true. However, the numbers do not take into account the movement of low-cost radial tire production from the U.S to China and other low-cost countries over the last 10 years, which directly accounts for the overall increase in imports.
"While it is obviously too early to tell if the ITC and the Office of U.S. Trade Representative will side with the USW, we think the market will gradually view the petition and any traction it gains as a positive for Goodyear and Cooper Tire," says Nick Mitchell, senior vice president of Northcoast Research Holdings LLC.
"Any protection would allow both manufacturers to more effectively manage price/mix-to-raw spreads -- though both companies would have to pay tariffs on tires brought in to the U.S. from plants in China -- and alleviate concerns investors have regarding increased price competition due to low cost imports, especially those coming in from China."
As such, Northcoast Research is reiterating its "Buy" ratings on Goodyear and Cooper stock.