The impact of the U.S. government's decision 11 months ago to impose stiff import tariffs on Chinese consumer tires is clear: Shipments from China have dropped more than 40 percent and the void has been filled predominantly by imports from other Asian nations.
The import tariffsinstigated under Section 421 of the Trade Act, which allows relief to U.S. industries injured by upsurges of imports from Chinahave proved a boon for tire makers in South Korea, Taiwan, Thailand, Indonesia and Vietnam, which have seen their shipments to the U.S. shoot up at least 60 percent during the same time frame, according to a Tire Business analysis of available trade data. (See table above.)
In the nine months (through June) since import duties on Chinese-made passenger and light truck tires shot up to 39 percent from 4 percent, U.S. imports of car tires from China fell 40.6 percent to 18.8 million units. Perhaps more significantly, the 18.8 million units are more than 60 percent lower than the volume imported in the comparable 2008/09 period, before U.S. demand collapsed.
Car tire imports overall during the nine months in question rose 7.8 percent to 80.3 million units, according to Tire Business' analysis of data.
Imports from Taiwan doubled to 2.79 million units, while shipments from Indonesia went up 70.5 percent to 5.72 million units, from Thailand up 64.2 percent to 3.85 million and from South Korea up 63 percent to 12 million units.
Until July 1, imports from Thailand were not charged duties. On that date the U.S. started started assessing passenger tires from Thailand a 4-percent duty on their declared value. The decision arose out of the U.S.'s annual review of the Generalized System of Preferences (GSP) program and a United Steelworkers (USW) petition seeking an end to Thailand's duty-free status.
The U.S. replacement passenger tire market is expected to grow about 5 percent this year over the depressed 2009 total to 199 million units, according to a recent Rubber Manufacturers Association (RMA) forecast, before slowing somewhat next year to a more modest 1 percent.
That amount of growth represents about 10 million units, which coincidentally is exactly how much imports rose in the first half of 2010. That leaves little if any room for domestic production to fill the void.
Replacement shipments of light truck tires are expected to rise 3 percent this year to 28 million units, the RMA said, but then should level off next year. That's a gain of about 1 million units. By comparison, imports were up 1.7 million units in the first half.
As the Sept. 26 date marking the first anniversary of the imposition of the Section 421 tariffs approaches, those affected are debating the issue's pros and cons, albeit quietly.
The tariffs will drop to 34 percent this year and 29 percent in 2011, before lapsing to the 4-percent rate in 2012. The Section 421 action was initiated in April 2009 by the USW, which represents more than 30,000 workers at tire plants in the U.S.
U.S. passenger tire production fell 14 percent last year to 118 million units, RMA data show, the lowest level in nearly four decades.
Of companies making consumer tires in the U.S., only Cooper Tire & Rubber Co. and Goodyear have disclosed plans to invest in their U.S. plants. Cooper's spending $7 million to expand capacity for car and light truck tires at its Tupelo, Miss., factory, while Goodyear is expanding its Lawton, Okla., car tire plant an undisclosed amount.
We're certainly watching the one-year mark, whereby the tariff drops by 5 percent, said Ron Sinclair, senior vice president of marketing for Huntersville, N.C.-based American Tire Distributors Holdings Inc. (ATD)
We haven't seen any formal actions or announcements from our manufacturers as to how they'll handle that, Mr. Sinclair told Tire Business. Right now we're in a watch-it-and-see mode.
While most everyone in the tire industry is waiting to see what happens when the tariffs fall, then exit altogether, many are staying close-lipped about the effect of the first-year tariffs on tire supplies, prices and employment.
That includes the USW, which declined comment for this article.
The union originally filed its petition in April 2009 with the International Trade Commission (ITC), claiming rising Chinese tire imports were to blame for the loss of more than 5,000 jobs at U.S. tire plants through year-end 2008. The union also cited 3,000 more job cuts scheduled through year-end 2009.
Between 2004 and 2008, U.S. imports of Chinese car and light truck tires tripled to more than 46 million units, the union told the ITC.
Toyo Tire Holdings of Americas Inc., which protested the tariffs to the Office of the U.S. Trade Representative (USTR)the administrator of the tariffsalso declined comment for this article, saying it had nothing to add to the testimony it had already given.
The ITC's proposed tariffs would prevent Toyo from importing any tires from China during the three-year remedy period, the tire maker said in its August 2009 comments to the USTR. The ITC's proposed remedy would, in effect, be a zero quota.
Bend, Ore.-based Les Schwab Tire Centers Inc., one of the nation's largest independent tire dealerships, also declined comment. A year ago Les Schwab CEO Dick Borgman testified that limiting Chinese imports would be a terrible blow to his company, which stocks a lot of economy-segment private brand tires, some of which are made in China.
The Tire Industry Association (TIA), which led the opposition to the tariffs along with several of its major distributor members, has had trouble quantifying the impact of the tariffs.
The biggest problem for us is that all the information we have is anecdotal, said Paul Fiore, director of government and business relations for TIA. What's missing from the discussion is that USTR has not been forthcoming with their efforts on data collecting.
Under Section 421 regulations, USTR must gather information regarding the effect of the tariffs on the domestic tire industry. However, Mr. Fiore said, this is the first successful Section 421 action, and the first time USTR has had to gather data under a Section 421 action.
TIA does not have its own data collection department, Mr. Fiore said. The Bowie, Md.-based trade association would like to know how much wholesale and retail prices have gone up as a result of the tariffs.
More importantly, we'd like to know what the picture is pertaining to jobs, he said. Unfortunately, the trade representative made a fairly general statement about saving jobs because of the tariffs, and when I challenged this, they sent a reply that was all spin.
A USTR spokeswoman said the agency would consider Tire Business' request for information for this article, but at presstime the agency had not responded.
Tire manufacturers and distributors who responded to questions agreed the tariffs hadn't resulted in a zero quota, as Toyo Tires claimed. The quotas helped to create tire shortages and higher prices, and forced some companies to reconfigure their long-term strategies, but they were not the only factors in the U.S. tire market.
2009 going into 2010 was a supply-constricted environment overall, not just in Chinese imports, said Mr. Sinclair of ATD. It was a relatively soft year, and a lot of manufacturers were taking capacity out of the market and reducing inventory.
When manufacturers make price changes, ATD implements those changes within its framework, he said, adding that ATD doesn't assess prices by country, and it doesn't disclose its purchase prices or percentage increases.
Jim Mayfield, president of private brand tire marketer Del-Nat Tire Corp., testified before the ITC against imposing the tariffs. Domestic tire companies, he said at the June 2009 hearings, started canceling their contracts to supply Del-Nat as early as 1998, and Del-Nat, like other companies of its type, had to turn to overseas suppliers to obtain the tires they needed.
In a recent telephone interview from his Memphis, Tenn., office, Mr. Mayfield told Tire Business tire supply disruptions had already begun by the time of the ITC hearings because of fears over the effects of the tariffs. Those disruptions, however, have lessened over time.
We continue to work with all our suppliers, including suppliers of Chinese tires, he said.
Prices from suppliers are running about 25 to 28 percent higher now than before the tariffs, Mr. Mayfield said. But the price increases since last summer were caused by more than just the tariffs. Some of them were caused by the raw materials price increases we've seen since the end of 2009.
Del-Nat has reduced its workforcea combination of warehouse and office staffby about 10 percent since the tariffs began, according to Mr. Mayfield.
As for domestic tire production, whatever production increases they've made have not benefited private branders like Del-Nat at all, he said.
GITI Tire (USA) Ltd., the Rancho Cucamonga, Calif.-based marketing subsidiary of Singapore-based Chinese tire manufacturer GITI Tire Pte. Ltd., testified strongly against the tariffs at ITC and USTR hearings last year.
Dealing with the tariffs has proved difficult but not impossible for GITI, according to Tom McNamara, the company's vice president of sales.
We only passed on a 15-percent price increase, absorbing the remaining 20 percent, Mr. McNamara said. When competing with Korean, Japanese, Taiwanese and other worldwide products, it is definitely difficult. With raw materials prices increasing, it is becoming even more difficult.
Although the tariffs have had an impact on GITI, the high quality of the company's products and serviceincluding extremely high supply chain and fill rateshave kept GITI in the market, he said.
In August 2009 comments to USTR, Cooper Tire & Rubber Co. said the Section 421 tariffs were unreasonable and would undermine Cooper's strategy of producing certain tires in China and others in the U.S.
Phil Caris, Cooper vice president of sales and marketing, said the Findlay, Ohio-based tire maker thought then that the tariffs would force it to make some dramatic changes to its market servicing plans. After the tariffs went into effect, however, Cooper decided not to make sweeping changes to that strategy.
We realized that in three years the tariff would go off, and we'd be back to where we were before, he said.
Cooper is actually bringing more tires in from China in 2010 than in 2009, because of higher demand, Mr. Caris said. The company also was able to use some of its excess capacity in the U.S. to meet that demand, hiring some new personnel at those plants in the process.
Some groups would like to attribute our increase in employment to the duties, but we can't say that, he said. There are so many different factors influencing our expansion needs.
Valencia, Calif.-based American Pacific Industries Inc. (API), a distributor of tires made in China, suffered badly from the tariffs at first but now is doing better, according to Jeff Kreitzman, CEO of API.
Initially we had a huge disruption, Mr. Kreitzman said. Everyone stopped or cancelled their shipments because no one knew what the tariffs would do.
When the tire shortage caused by the tariffs came in, orders started coming back in to API, first tentatively and then strongly, according to Mr. Kreitzman. Price increases totaling 30-40 percent did not stop the orders, he said.
We have record sales now. We can't get caught up, but our margins are down.
Meanwhile, non-Chinese tire makers in the same markets as API, such as Hankook, Kumho and Sumitomo, are seeing their profits soar, Mr. Kreitzman said. Because they can raise their prices, he added, they are.
It's so ridiculous, he said. We have the highest rate of unemployment in this country in decades, and all we're doing is foisting these price increases on the public because of these tariffs. And no new jobs are being added to the economy because of them.
Saul Ludwig, an analyst with Northcoast Research Holdings L.L.C. in Cleveland, agreed that the factors influencing the increase in tire demand and prices are difficult, if not impossible, to separate from each other.
Some increases resulted from the tariffs, but raw materials costs prompted some increases as well, he said. And inventories had been drawn down to very low levels since the recession began. When you start having poor fill rates, you crank up demand.
Among importers of tires to the U.S., East Bay Tire Co.which imports tires from Indonesia and India as well as Chinahas not seen much effect from the Section 421 tariffs in comparison with other factors, according to Tom Van Ormer, the company's director of purchasing and marketing.
We've suffered more from raw materials cost increases than from the tariffs, Mr. Van Ormer said. When the tariffs started, most everybody said, 'Goodness gracious, what's going on?'
But then most manufacturers made adjustments and ate some of the tariffs themselves. That goes across the board for everybody.
East Bay's passenger and light truck tire imports from China are at about the same levels now as they were before the tariffs, Mr. Van Ormer said, while imports of the VSP brand from Indonesia have increased, as have their prices. Indonesian tire makers cite raw materials and freight costs, not the effect of the tariffs, as the reasons for price hikes, he said.
American Kenda Rubber Ind. Co. Ltd., U.S. subsidiary of Taiwanese tire maker Kenda Rubber Industrial Co. Ltd., also has seen some effects from the tariffs, according to Hank Chang, American Kenda director of sales and marketing.
They have certainly affected us a lot, especially in pricing, Mr. Chang said. We have been forced to absorb a lot of costs ourselves. American Kenda's selling prices have gone up 15 to 20 percent, he said.
Duro Tire & Wheel Co., a subsidiary of Hwa Fong Rubber Ind. Ltd., declined comment for this article. Hwa Fong has manufacturing plants in China, Thailand and Taiwan.
As for imports from Thailand, Falken Tire Corp. accounts for the bulk of shipments from that country. In testimony earlier this year pertaining to the GSP duties case, Falken President Richard Smallwood said Falken accounted for up to two-thirds of car tire imports from Thailand.