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The tariff effect, one year later

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The tariff effect, one year later

There is ongoing debate about what effect the one-year-old, 35% tariff on Chinese consumer tire imports has had on the economy in general and pricing in particular. At first glance, the United States-China Business Council Inc. (USCBC) suggests it was an overreaction to the considerable growth in Chinese imports, especially “low-end” tires.

Since then, tire prices are up, while tire manufacturing jobs continue to decline, according to USCBC research. (Goodyear Tire & Rubber Co. is a USCBC member.)

“All this shows that tariffs on Chinese low-end tire imports likely have nothing to do with creating American jobs.”

Just to be sure, however, the USCBC believes the International Trade Commission “should conduct a fact-based investigation into the impact of the... tire tariffs before any further such actions (against other Chinese imports) are contemplated.” The council put those thoughts in a letter sent to President Barack Obama.

In contrast, two organizations believe the tariffs have been successful in meeting economic and employment goals.

The Alliance for American Manufacturing (AAM) and the United Steelworkers (USW) dispute the USCBC’s findings. They both report that domestic tire production and manufacturing jobs are up significantly, and credit the tariffs for the turnaround.

In a recent report, the AAM, which bills itself as a non-partisan, non-profit organization, concluded that the imposition of the tariffs reversed “the massive decline in domestic production” that bottomed out last September.

“Looking at the first six months after imposition of relief — October 2009 to March 2010 — vs. the same six months in 2008-09, domestic production was reportedly up over 15%, or more than 10 million tires based on Rubber Manufacturers Association data. Apparent consumption is also up.”

Whoa. The AAM is treating “Apparent consumption is also up” as a throwaway line.

I agree that domestic production has increased. The USW, which is strongly aligned with the AAM, says production is up at Goodyear, Cooper and Michelin plants covered by union contracts. I have no reason to doubt those claims.

However, production is up because consumption is up. Also, because domestic tire manufacturers spent the last quarter of 2009 reducing their inventories, they find themselves unable to meet current demand. The tariffs have very little to do with the increase in production.

Through July, Chinese consumer tires are down 31% compared to the same period last year. But overall consumer tire imports are up 18%. South Korea has almost doubled its imports to the U.S. Both passenger and light truck tire imports from Japan, Canada, Thailand, Taiwan and Brazil also are up considerably. Passenger tire imports from Indonesia are up more than 100%.

In other words, all tire manufacturers and marketers are scrambling to meet demand any way they can. Domestic manufacturers have the advantage of increasing their production, and have done so. They just haven’t increased low-end tire production, which is still coming from overseas. That won’t change.

The AAM also believes that customers are choosing domestic brands over imported tires because the tariffs have caused the price discrepancy between consumer tires made in the U.S. and China to shrink. “The disruption to the pricing in the market has abated,” it concludes.

The AAM should ask the consumer whether or not pricing is normal. Based on my research, overall pricing has risen anywhere from 5% to 13% in the last 12 months. Some of that is because raw material costs are up. Some of that is because demand is greater than supply. And some of that is because of the tariffs, which have affected private brand pricing more than major brand pricing.

The end result? The consumer pays more for tires, and has fewer price — and, therefore, brand — options.

The Tire Industry Association (TIA) is calling for an end of the tariff, or, in the alternative, to collect accurate, objective data on the tariff’s effects.

“Certain parties with a clear agenda are claiming they have data that demonstrates the success of the tariffs,” says TIA Executive Vice President Roy Littlefield. “We know that most of this data is, in reality, anecdotal, and we believe they are also distorting other data by obscuring critical details.

“TIA believes that if the president will not eliminate this punitive tariff, at the very least, his administration owes the tire industry an objective and accurate report that will specifically compare tire imports from China to tire imports from other Asian countries on a current-year versus previous-year basis, and to identify exactly which tire lines are now being manufactured by U.S. tire makers.”

I agree with TIA. An objective view in this case is far superior to a subjective view.   

Questions? Comments? E-mail me at bob.ulrich@bobit.com.

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