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Even the union won't benefit from a 55% tariff on Chinese imports

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Wow. On June 29, the International Trade Commission (ITC) voted to remedy what it considered a threat to domestic tire manufacturing — Chinese consumer tire imports — with a 55% tariff!

The United Steelworkers, as you might expect, were ecstatic. The union called it “a great victory for the USW, its members and for all U.S. tire workers.”

It’s not a “victory” yet. The commission’s remedy, which includes a 45% tariff in year two and a 35% tariff in year three, is only a proposal. (The duties are not cumulative from year to year.)

The United States Trade Representatives Office will send its own recommendations to President Obama. He, in turn, will make a final decision in September.

At this point, no one is sure how the White House will handle this situation. China has let it be known through the press that it would be unhappy with the tariffs as they stand.

China has a lot at stake in the final decision. Close to 47 million passenger and light truck tires were imported from China in 2008.

China also is the largest foreign investor in U.S. Treasury bonds, making our country highly indebted to it.

The general rate of duty on radial consumer tires is 4% of the U.S. Customs value. An additional 55% would effectively curtail imports and hurt any manufacturers and private brand marketers that bring in product from China.

I’m not sure what is going to happen, but I find it hard to believe that the tariffs will stand given the leverage China has over our debt. The ITC’s 4-2 vote in favor of the tariffs was not unanimous, so the president has some justifiable leeway in reducing them.

If history is any indication, the president does not rubber stamp ITC proposals. The Bush Administration rejected the ITC’s remedy proposals on many other commodities, including Chinese steel shirt hangers.

We will find out soon enough. In the meantime, I’m not sure the USW, which brought the issue to the attention of the ITC, knows what it has done.

Domestic tire manufacturers, either separately or through the Rubber Manufacturers Association, were noticeably absent from any ITC discussions about limiting Chinese imports. Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. have consumer tire plants in China and bring in product. So does Michelin North America Inc.

The union has to negotiate contracts with all of them. Not being able to bring in products made in China under their own supervision will hurt these tiremakers’ profitability.

Cooper is more dependent on Chinese production than either Goodyear or Michelin. Fortunately for the union, contracts with Cooper’s two domestic plants were finalized last year.

The USW is at the bargaining table with both Goodyear and Michelin. The negotiations have outlasted the original expiration date of the contracts. Additional tariffs won’t help the USW at either bargaining table.

Lost in the ITC’s decision was its definition of Chinese tire imports. One of the reasons the commission supported the need for tariffs was its finding that “domestically produced passenger vehicle and light truck tires are ‘like’ the subject (Chinese) imports in that they are substantially identical in inherent or intrinsic characteristics” such as quality.

No longer can the USW ever claim tires manufactured in union plants are superior to Chinese-made imports.

According to Modern Tire Dealer’s recent “Made in China” tire survey, 88% of the independent tire dealers in the U.S. sell consumer tire imports from China. When asked if they would source tires from other countries if selling tires from China became cost prohibitive, 80% said yes, they would.
Tire dealers have a lot of options when it comes to buying tires. Marketing arms with ties to Chinese manufacturing, such as American Kenda Rubber Industrial Co. Ltd., GITI Tire (USA) Ltd., Maxxis International-U.S.A., Nexen Tire America Inc. and Tireco Inc., have fewer options. A few private brand marketers may be out of options.

“The recommended tariffs will have significant beneficial effects for the domestic industry,” said Tom Conway, the USW’s international vice president, and chairman of the bargaining team that is negotiating with Goodyear.

There will be effects, all right. At least for a while, dealers will be without entry-level product, because the high tariffs will keep Chinese imports out of that tier. Domestic manufacturers that bring in low- and even high-end tires will make less money. More union plants may close as a result.

Be careful what you wish for.    ■

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

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