AKRON (Sept. 14, 2012) — With the three-year run of elevated tariffs on Chinese consumer tire imports set to expire Sept. 26, key players in the field are preparing to resume shipping tires “at 12:01 on the 27th,” according to one source.
Although the possibility exists the Obama administration could still take action to extend or otherwise re-implement the tariffs, there has been no official proclamation one way or another from government officials and the consensus among industry players is the tariffs will reset to 4 percent on Sept. 27.
In spite of the tariffs, China has remained the largest supplier of imported passenger tires and second largest light truck tire source throughout the three years.
Through the first half of 2012, passenger tire imports from China were up 8.8 percent over 2011 to more than 12.8 million units, or 20 percent of all tires imported, according to available trade data. Light truck tire imports from China, on the other hand, were down nearly 20 percent in an overall down market.
One company hit particularly hard by the tariffs was Del-Nat Tire Corp., but the Memphis, Tenn.-based private brand wholesaler has positioned itself to be “as prepared as we possibly can be” for the expiration of the tariffs, according to President Jim Mayfield.
That preparation includes getting the firm's warehouse in Memphis qualified as a Foreign Trade Zone (FTZ), which allows Del-Nat to import tires duty free and hold them until after the tariff rate changes on the 27th, Mr. Mayfield said, explaining that obtaining FTZ status was a process that took more than a year.
Longer term, he added, having FTZ status for the Memphis facility will give Del-Nat a financial advantage of being able to warehouse imported tires duty-free. Companies with FTZ warehouses pay duties on goods only when they leave the storage facility, he said, which can help improve cash flow.
Mr. Mayfield did not comment on the number of Chinese-sourced tires Del-Nat has in inventory but indicated the demand for such tires is primarily in the Tier 3 and lower Tier 2 categories in smaller rim diameter sizes.
According to a number of dealers Tire Business spoke to, other importers have taken or are considering this route as well. Tireco Inc., for one, applied for FTZ status in February 2011 for its warehouse in Fontana, Calif., according to documents from the Port of Long Beach.
Does the industry expect a flood of Chinese tire imports come Sept. 27?
Market conditions may assuage the pace of rebound a bit, several sources said, since demand is weak at the moment and many dealers are still inventory-heavy, although as Mr. Mayfield said, a lot of dealers have been working their inventories “down to zero or near zero” in anticipation of the tariffs expiring.
Roy Littlefield, executive vice president of the Tire Industry Association, said based on talks with people from Congresss and from the World Trade Organization, “The conventional insider wisdom is that the tariffs will not be extended. But the fact that the President specifically mentioned the tariffs in his State of the Union address gives us pause.”
“This is shaping up to be a very close election,” he said. “If Obama can make hay with the idea that he can save American jobs by extending the tariffs, he will.”
The actual effect of the tariffs is hard to judge, according to Mr. Littlefield.
“You can argue they saved jobs, and you can argue they didn't, though we firmly believe they didn't,” he said. “When the unions say it saved American jobs, I don't know how they know that. Tariffs have been a political tool for years to try and save jobs, but that is very hard to quantify.”
While Section 421 rules set out specific steps the president must follow to extend the tariffs, he is not absolutely bound by them, according to Mr. Littlefield. “Many people have told us that he certainly has the means available to do something without adhering to the strict guidelines,” he said.
Mr. Littlefield said he wasn't sure that the number of imported tires would increase if the tariffs are lifted, but he did say they will come from different countries again. In any case, he added, the loss of Chinese tire imports was bad news for consumers.
“You've got a tough economic situation out there,” he said. “Part of the appeal of Chinese imports was that you had tires coming in that passed federal safety and performance standards and were less expensive. It was an option for a lot of people, and it was taken away from them.”
The United Steelworkers (USW) union, which petitioned the government in 2009 to consider action against Chinese imports under provisions of Section 421 of the Trade Act of 1974 was non-commital about whether the tariffs would be extended.
“Section 421 tire relief has been a big success for the workers, the companies and the nation,” the union said.
Under the statute, the USW said, “jobs have been maintained, new domestic investments have been made and global sourcing has changed. We will continue to fight for the jobs of our members against unfair and predatory trade practices of our competitors and intend to watch carefully what happens in the coming days.”