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Tariffs: The rest of the story

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Tariffs: The rest of the story

When the tariffs on consumer tires from China are implemented, who will suffer the consequences? Will your business suffer any repercussions?

The first reaction to change tends to be negative because it potentially takes us out of our comfort zones. If the change is a paradigm shift, people seem prone to panic.

The tire tariffs will not lead to Armageddon. But until the changes become reality and you have a chance to adapt to them, who knows what the effect will be on your business? You have every right to be initially pessimistic. You will adapt, however.

It’s easy for people who are pro-tariff, like the United Steelworkers union, to say America will benefit if they get their way. However, you have to look closely to see whether or not their statements are self-serving. Do they mean America or themselves? Your business is part of America, isn’t it?

All these questions will be answered with the passage of time. For those of you who can’t wait, I offer up an analysis of this hot-button topic by the numbers without hype or spin or opinion (well, maybe a little opinion).

You don’t have to disregard what you have heard. Paraphrasing the late, great Paul Harvey, the numbers simply will give you “the rest of the story.”

When the U.S. Department of Commerce (DOC) recently increased the tariff percentages on almost all passenger and light truck tires imported from China, the reactions ranged from delight (domestic tire manufacturers and marketers not importing tires from China come to mind) to outrage. Just how badly will the tariffs affect you?

Let’s use Giti Tire (USA) Ltd.’s GT Radial Champiro 228 as an example. Giti’s parent company, Giti Tire Pte. Ltd., is based in Singapore, but exports consumer tires from three Chinese plants. It was hit with combined countervailing and anti-dumping duties of 67.17%.

In testing performance all-season tires, Consumer Reports listed the approximate retail value of the V-rated Champiro 228, size 215/60R16, at $109, which places it in the middle of the pack in that segment. Increasing that by 67.17% would raise the cost of the tire to $182.21.

That would make it higher than every other performance all-season tire tested by Consumer Reports, including the V-rated Pirelli Cinturato P7 All Season tire, which costs $170.

Performance Plus Tire & Automotive Superstore in Long Beach, Calif., sells the same Champiro 228 for $79. With the tariff adjustment, that tire comes in at $132.06, matching it against the Goodyear Eagle Sport All Season. I’m not sure that is the tire Giti wanted to compete with price-wise.

Dan’s Tire Service LLC in Williston, N.D., markets the Champiro 228 on its website, but has to special order it. Including charges for same-day shipping from the closest wholesale distributor, the price of the tire to the consumer is $155. With tariffs, the cost increases to $259.11!

It’s not unreasonable to believe Dan’s Tire will not sell a single V-rated Champiro 228 for that price.

Giti does not market GT Radials against low-cost Chinese imports. The same can be said about some of the other tire companies on the list, including Cooper Tire & Rubber Co. The tariffs don’t take that into consideration.

Aeolus Tyre Co. Ltd., which only has been exporting tires from China to the U.S. for a few years, was slapped with combined tariffs of 118.86%! It, too, was not competing in the lowest-cost radial segment.

“At this point, it is prohibitive for us to sell (Aeolus) passenger tires in this market,” said General Manager Jason Rothstein following the DOC’s decision.

If the purpose of the DOC was fair trade, it failed miserably.

Giti already has raised its prices twice this year, which will help offset some of the damage. The company may also choose to eat some (probably) or all (not likely) of the additional cost. Most of the other companies affected by the tariffs — Aeolus excluded — no doubt will follow suit.

The lowest tariffs this time around, 45.22% for Sailun Group Co. Ltd. and 46.03% for Cooper Tire, are higher than the 35% attached to all consumer tire imports from China in 2009. The higher tariffs easily will offset the comparatively lower raw material costs this time around.

Recent history tells us all tire prices rise dramatically when new tariffs are implemented. When the prices of “good” tires are increased, there is a corresponding change in the “better” and “best” tires.

From 2009 through most of 2012, were you able to pass along all the price increases? I didn’t think so. You can expect that to again be the case for the next five years.

And there is precedent that five-year time frame could easily stretch into 10 years.   ■

If you have any questions or comments, please email me at bob.ulrich@bobit.com.

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