It took three years and a day, but the International Trade Commission has reversed an earlier decision and ruled the U.S. tire market is being harmed by the import of truck and bus tires from China.
On Jan. 30, 2019, the ITC filed a 62-page determination in response to an order from the U.S. Court of International Trade. On Nov. 1, 2018, the court remanded the ITC’s earlier decision not to impose tariffs on truck tires — effectively forcing the ITC to re-examine the case.
What does it mean? It likely means that truck and bus tires imported into the U.S. from China will be subject to tariffs. The court ruling doesn’t reveal the tariff rates, or a timeline. But all of the parties will have an opportunity to respond to the ITC's new findings.
How it happened
When the ITC started its re-examination, it did so with five members on the commission. Four had been part of the original ruling, and they split their votes 2-2. The fifth commissioner, Jason Kearns, was new to the case. (He had been nominated in the final days of former President Barack Obama’s term in Jan. 2017, and then was nominated by President Donald Trump in June 2017. He was confirmed by the U.S. Senate in March 2018.)
The former commissioner who had determined there was no injury to the domestic tire market, Scott Kieff, left the ITC in June 2017 to return to academia. He left three years before his nine-year term was to expire.
The new commissioner, Kearns, “made his determination in these remand proceedings de novo by weighing all of the evidence in the record and reaching his own independent conclusion,” and ended up being the swing vote. He voted with Irving Williamson and Rhonda Schmidtlein and determined the domestic truck tire market is being harmed by the imports. (Commissioners David Johanson and Meredith Broadbent maintained the market isn’t being hurt by the Chinese imports.)
A condensed roundup: How we got here
The issue of Chinese truck tires became a formal government complaint in January 2016 when the United Steelworkers union filed a complaint, saying the imports were harming the U.S. truck tire market. The complaint worked its way through the typical government process, with investigations by both the U.S. Department of Commerce and the ITC. Typically, the ITC has the last word, and if the commissioners say there’s no harm to the domestic industry, then no tariffs are imposed on the affected goods. If the commissioners find there is injury, then there are tariffs.
It was a surprise in February 2017 when the ITC voted 2-3 not to impose tariffs, as every other tariff investigation in the tire industry had resulted in duties being charged at the border.
The USW had one more chance. They took the negative ruling to the U.S. Court of International Trade and appealed the ITC’s ruling. On Nov. 1, 2018, the court issued its ruling, and the ITC was forced to re-examine its work.
What the commission reviewed
The court upheld some of the ITC’s findings, but found an issue with two points, and told the commission to reconsider them. The ITC did not reopen the record, meaning it examined the same data that was presented originally. It focused on:
- price effects of the imported tires
- impact of the imports
Price effects: In studying price effects, the ITC is charged with determining if there was been “significant price underselling” by the imports as compared to the domestic product. Also, the ITC must determine if the imports depress prices significantly or prevent price increases which otherwise would have occurred.
The ITC looked at data for four different truck and bus tires, including price data for shipments to both original equipment manufacturers and the aftermarket.
“In total, the Chinese subject tires undersold the domestic tires in 79 of 85 comparisons. In the aftermarket, the segment with the most significant growth over the investigation period and where the subject imports are concentrated, the Chinese truck and bus tires undersold the domestic tires in all 60 quarterly comparisons. These quarterly data totaled 2.5 million tires. In the OEM market, the subject imports undersold the domestic like product in 19 of 25 comparisons.”
The price differences were “substantial” and increased over the period of investigation. “Thus, we find underselling by the subject imports to be significant.”
Impact of the imports: The ITC was looking at data from 2013-2015, and during that time the U.S. market grew by 21.3%. But the domestic tire makers’ share of the market dropped by 7.7%, from 53.3% to 45.6%. Domestic shipments grew 3.9%.
At the same time, the Chinese imports grew by 41.9% and their market share increased 4.9%, from 28.7% in 2013 to 33.6% in 2015.
Capacity utilization improved, U.S. production increased, but domestic shipments only grew by 3.9%, far below the overall consumption of 21.3%. Chinese tire makers say their imports are filling a gap in demand in the U.S., but the ITC says data doesn’t support that claim. Industry wide, capacity contracted slightly from 2013 to 2015.
The Chinese producers also argued that the financial health of U.S. tire producers proved they weren’t being harmed by imports. And decreasing raw material costs could explain lower prices.
“We disagree. We find that subject imports had a significant adverse impact on the domestic industry. The industry lost substantial market share to the subject imports in a period of strong demand. The subject tires undersold the domestic product by significant and increasing margins of underselling and depressed prices, preventing the domestic industry from increasing its revenues commensurate with growing demand.
“Although profitable, due to the increasing presence of low-priced subject imports from China the industry lost revenues that it would otherwise have obtained, had unused capacity, and postponed investments that would have expanded capacity rather than simply maintained current equipment and current capacity levels. Lower shipments than what otherwise would have occurred also impacted the ability of the industry to expand employment opportunities in a period of increased demand.
“In sum, we find that the significant volume of subject imports, at prices that undersold the domestic like product and depressed domestic prices, adversely impacted the domestic industry. We consequently determine that the domestic industry is materially injured by reason of subject imports.”