Would you believe a 60% tariff? That is a possibility, according to a report by Exane BNP Paribas.
On July 22, 2014, the United States International Trade Commission determined consumer tire imports from China may or may soon be "materially" injuring the domestic tire industry.
The decision begins a process that may lead to a 60% additional tariff, "plus 26% punitive tariffs," according to Exane. "The Chinese Rubber Industry Association has said that should this materialize, it would be impossible to import tires from China, and that it would demand the Chinese government take countermeasures."
The tariffs would be in addition to the 4% duty already in place on consumer tire imports from China.
Tire manufacturers have been mum on the subject of possible tariffs. Exane believes Groupe Michelin would benefit from additional tariffs.
"The possible re-introduction of U.S. tariffs on China-made tires could result in a 1-2% tailwind to Michelin's EPS (earnings per share), while highlighting its dependency on low profitability and price-driven, entry-level tires."
Michelin was affected negatively when the tariffs imposed on passenger and light truck tire exports from China to the U.S. in 2009 expired in 2012, according to Exane.
"Michelin does suffer from competition from entry-level players, unlike any other European tire maker," says Exane. "As we firmly believe the premium segment is set to structurally grow faster and be more disciplined and profitable, we think Michelin shares deserve to trade at a discount to EU (European Union) peers, and see them as being fully valued currently."
Exane S.A. is an investment firm based in Paris, France. Under the brand name Exane BNP Paribas, Exane says it "provides institutional investors with a range of services, such as research, sale and execution on European equities."