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Extreme Protectionism Builds Walls and Hinders Aggressive Business

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Extreme Protectionism Builds Walls and Hinders Aggressive Business

Free trade is an admirable goal, but it is fluid. For example, the North American Free Trade Agreement, or NAFTA, allows goods to be transported from Mexico and Canada to the U.S. without tariffs, and vice versa.

According to the Office of the U.S. Trade Representative, U.S. exports to Canada and Mexico support more than 3 million American jobs. In addition, trade with the two countries “has unlocked opportunity for millions of Americans by supporting made-in-America jobs and exports.”

However, Mexico placed tariffs on 89 products exported from the U.S. in 2009 in retaliation for a cross-border trucking dispute between the two countries. It remains partially in force.

In all, the U.S. has beneficial free trade agreements with 20 countries. None of them are China, India or Sri Lanka.

Earlier this year, Titan Tire Corp. and the United Steelworkers union (USW) filed a petition seeking an investigation into unfair trade practices from these three countries. They claim OTR tire manufacturers are flooding the U.S. market with low-cost OTR tires at the expense of domestic manufacturers, and that they have been materially injured as a result.

It is their right to do so. Even in countries with which we have free trade, the agreements do not supersede the rights and obligations under the World Trade Organization relevant to tariffs.

The U.S. International Trade Commission (ITC) and U.S. Department of Commerce will spend the next few months determining whether or not Titan and the USW are correct. I hope they get the facts right this time. In 2009, tariffs were implemented on all consumer tire imports from China based on two false premises: 1) all Chinese tires competed in the Tier 4 segment, and 2) domestic tire manufacturers were producing low-cost radials.

I think it is telling Titan is the only tire manufacturer claiming unfair treatment at the hands of its OTR competitors in China, India and Sri Lanka. Titan is the same manufacturer that convinced the U.S. government to saddle Chinese OTR tire manufacturers with massive tariffs a few years ago. Evidently, they weren’t large enough.

OTR tire shipments from these three countries are up nearly 9% from 2012-2014. With overall demand down, Titan says it has not been able to compete on price, and as a result lost not only market share, but also income that could have been used to invest in facilities and R&D.

Interestingly, Balkrishna Industries Ltd. (BKT), Alliance Tire Group and Camso Inc. have all invested in their respective facilities in India and Sri Lanka. BKT recently opened a state-of-the-art plant in Bhuj, India. Those companies also are heavily marketing their products in the U.S. in an attempt to gain name recognition, both at the replacement and original equipment levels.

Domenic Mazzola, vice president of engineering and OE sales for Alliance Tire Americas, describes the U.S. market as a series of niche markets, some of which have experienced increases in demand.

“Major OTR (tire) producers must maintain an enormous range of products.” With more than 1,900 SKUs, Alliance manufactures tires “ranging from 10 pounds to 2,500 pounds, and ranging in price from $50 to $13,000 a tire.”

Additionally, Mazzola questions Titan’s reliance on low-sidewall technology (LSW) in the agricultural tire market, which, if true and unique to Titan, would either give it a competitive advantage or disadvantage on its own merits. The playing field doesn’t have to be level if technology is involved.

Thankfully, the ITC decided not to investigate OTR tires imported from China, but the cases against India and Sri Lanka continue.

Governments always take into account the balance of imports coming in and exports going out when considering trade agreements. They also are influenced by political activists, like unions. Free trade is rarely free, but it should at least be fair.

I am not against protectionism, which is defined by www.businessdictionary.com as follows: “Governmental policy aimed at shielding a fragile economy, or a weak or critical sector, from cheaper or better imports through imposition of high duty rates (tariff barriers), quotas, and/or inordinately stringent or time-consuming inspection or quality regulations (non-tariff barriers).”

The online dictionary goes on to say all countries practice protectionism in one form or another “but, generally, without going to any extreme.”

In moderation, the concept of protectionism is reasonable. At worst it reduces “free” trade to “relatively unencumbered trade,” and it brings a little money into government coffers to boot. I think that is the way it should be. Building either proverbial or literal walls between countries doesn’t help anyone in the long run.   ■

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

To read more of Bob Ulrich's editorials, see:

An Important Voice: 'Independently Owned' Still Means Something

Adapt and Conquer: Obamacare, Tire Labeling and Tire Registration

Pricing on Chinese Tires -- Tariffs Are Not Having the Same Effect This Time Around

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