Pricing On Chinese Tires -- Tariffs Are Not Having The Same Effect This Time Around
Tariffs? What tariffs? Five months after the anti-dumping and countervailing duty investigations on consumer tire imports from China were affirmed by the U.S. International Trade Commission, tire prices have not risen, at least in some parts of the country.
How can that be? When tariffs on Chinese passenger and light truck tires were implemented in 2009, the price of a low-cost radial increased dramatically. Four years after the tariffs went into effect, tire prices had risen 28.4%. That is an average price, but any time low-cost radial pricing increases, the “good,” “better” and “best” tires tend to follow suit.
Is this ever good for the consumer? Of course not. But it is not unfair for tire manufacturers to receive value for their products. As for tire dealers, sometimes you get to take advantage of price increases, and sometimes you don’t. It all depends on supply and demand.
The tariffs this time around are much higher, so high that some Chinese tire manufacturers have considered ignoring the U.S. market altogether. Aeolus Tyre Co. Ltd. is one example.
Is this good for the consumer this time around? The answer is no. And yes. Perhaps it is even moot.
Some of the largest independent tire dealers in the country visited the Specialty Equipment Market Association (SEMA) Show in Las Vegas Nov. 3-6. I had a chance to talk with many of them about pricing.
I also broached the subject with a number of smaller dealers. Remember, some 60% of all independent tire dealers own a single outlet, making them the bread-and-butter retailers of our industry.
And I talked with manufacturers and exhibitors as I walked from booth to booth and checked out what was going on.
Here’s what they all had to say about pricing. I guess what happens in Vegas doesn’t always stay in Vegas.
Most of the dealers told me they had noticed no change in the prices. No change! And some said the price of low-cost imports had even decreased; one dealer said low-cost consumer tire pricing in his area had dropped by as much as 30%!
Keep in mind the tariffs in place range from 45.22% (Sailun Group Co. Ltd.) to 188.76% (Shandong Yongsheng Rubber Group Co. Ltd.). The tariff on Chinese tires in 2009 was 35% across the board.
Lower prices don’t seem possible given recent historical precedent. But as I talked off-the-record with the dealers, manufacturers and marketers, reasons for the pricing started adding up.
- Low raw material costs.
- Subsidizing by the Chinese government.
- Deals by many of the smaller Chinese manufacturers looking for cash flow.
- Greater supply than demand.
Two of the four — Nos. 1 and 4 — could change, which would likely lead to an increase in pricing. But those factors, especially No. 4, tend to be ruled by free trade and are unrelated to the tariffs. Nos. 2 and 3 are more artificial, and if they continue, pricing could be held down indefinitely.
(A few of the dealers said pricing had risen, but they were in the minority.)
Here is what I think will happen. China already has twice devalued its yuan because of its slumping economy, and I think it will keep subsidies in play, which will keep all the low-cost radial tire plants in China in operation for the time being. Consider the tires in some ways a loss-leader for China.
As for the “deals,” some of which were offered at the show (205/55R16s for $18 apiece?!), they will only hold off the proverbial creditor for so long. My guess is many of the companies with smaller, older factories will be weeded out over time.
Eventually, only the stronger Chinese tire manufacturers that have state-of-the-art plants and try to make money without dumping tires will survive. Their pricing is comparatively higher in the U.S. anyway, which is why I was surprised they, too, were hit with such exorbitant tariffs.
Will truck tires soon be saddled with tariffs as well? Retreaders at the show sure hope so. They are suffering because many Chinese tire manufacturers are selling new truck tires for less than a same-size retreaded truck tire.
I recently received an email offering 16-ply 11R22.5 trailer tires for $105 apiece. Even with FOB costs, that’s pretty low.
Getting our government to levy tariffs on truck tires imported from China will only happen if our nation’s fleets think it is important. But as we are finding out with Chinese consumer tires, the tariffs may prove irrelevant. ■
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