How Tire Tariffs on Chinese Imports Have Affected Pricing

Bob Ulrich
Posted on November 12, 2015

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 of our industry.

I also talked with manufacturers and exhibitors as I walked from booth to booth and checked out what was going on.

Here’s what they had to say about pricing. I guess what happens in Vegas doesn’t always stay in Vegas.

Four years after the last tariffs on consumer tire imports from China went into effect, tire prices had risen 28.4%. That is an average price, but once low-cost radial pricing increases, the “better” and “best” tires (and “good” if you consider low-cost imports to be its own category below “good”) tend to follow suit. Is this good for the consumer? Of course not.

The tariffs this time around are much higher. Good for the consumer? The answer is no. And yes. And moot. 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 decreased – one dealer said by as much as 30%! How can that be? They offered up a number of factors.

1. Low raw material costs.

2. Subsidizing by the Chinese government.

3. Deals by many of the smaller Chinese manufacturers looking for cash flow.

4. 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 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 were saddled with such exorbitant tariffs.

Related Topics: 2015 SEMA Show, Chinese tire imports, raw material costs, supply and demand, tariffs, tire pricing

Bob Ulrich Editor
Comments ( 4 )
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  • Dave Baier

     | about 4 years ago

    Bob, I think your comment about China's "slumping economy" driving lower tire prices is a bit of a reach. In fact, the yuan is trading at the same rate against the dollar as it was four years ago (6.37¥ = $1 [11/13/15], 6.34¥= $1 [11/13/11]). The euro, on the other hand, has significantly devalued against the dollar over the same period (0.93€ = $1 [11/13/15], 0.73€ = $1 [11/13/11]) . The dynamic of what is happening with the yuan is more closely related to China's quest to join the IMF (International Monetary Fund), and allowing more floating latitude by their central bank. The dynamic related to the euro is the economic rebuilding and debt restructuring of the various euro-zone members. You have it right with the first reason - lower raw materials! Natural rubber pricing is significantly off, as is crude oil. I'm sure you heard the comments as you reported them, but the people that gave you the comments weren't accurate.

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