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August 23, 2018 02:00 AM

Industry reps argue for, against additional tariffs

Bruce Davis
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    WASHINGTON — With one notable exception — retreading — the tire and automotive aftermarket industry is arguing against the imposition of further import tariffs on Chinese goods under Section 301 of the Trade Act of 1974.

    During hearings the week of Aug. 20 in Washington, representatives of the tire industry testified that the Trump administration's proposal to impose additional tariffs on goods from China — set forth in the Section 301 proposal — would hurt U.S. consumers while accomplishing little if any of the trade action's goals.

    The Trump administration proposed in early July imposing 10-percent tariffs on a range of goods with a market value of $200 billion. Among the products on the list are new pneumatic tires, bias, radial and/or solid, for virtually every kind of vehicle, ranging from motorcycles to heavy-duty construction, mining and/or industrial vehicles, as well as used tires, retreaded tires, tire treads and inner tubes.

    Among those who testified at the hearings against imposing additional tariffs were: Walter Weller, China Manufacturers Alliance L.L.C.; Jason Rook, Tube & Solid Tire Ltd.; Tim Miller, Lionshead Specialty Tire & Wheel; Derek Zhang, Transamerica Tire Co. Ltd.; Dennis Mangola, Chatsworth Tire Inc./DMC Consulting Inc.; Bill Hanvey, Auto Care Association; and Ann Wilson, Motor & Equipment Manufacturers Association (MEMA).

    Tire Business file photo

    Stevens

    The exception to the rule was David Stevens of the Tire Retread & Repair Information Bureau, who "implored" the Office of the U.S. Trade Representative (USTR) to protect the thousands of "hard-working men and women" in dozens of small to medium-sized businesses from "unfair competition and pricing by low-cost, low-quality Chinese tire manufacturers" by imposing the proposed tariffs.

    In his testimony, Mr. Stevens noted that truck tire retreading in the U.S. has declined 2.1 percent annually since 2013 while at the same time the replacement market for truck/bus tires has grown 5.4 percent annually, a trend he blamed completely on "low-cost, low-quality" Chinese truck tire imports. The result has been a production drop of nearly 2.5 million retreads.

    "Retread manufacturers and supporting industries have had to lay off employees, reduce hours, and close their businesses in the face of this unfair competition," he said, arguing that it's possible today to buy a Chinese truck tire for less than the cost of materials and labor in the U.S. to manufacture one ($125 vs. $135).

    As a result, the difference in the average sales price of a U.S.-produced truck tire can be $60 or more ($231 vs. $170), and the tire that sells in the U.S. for $170 retails for $180 to $220 in China.

    In addition, Mr. Stevens argued, "These low-cost, low-quality tires from China cannot be retreaded and will start to create problems in the tire recycling industries as well as creating local problems with illegal tire dumping and tire piles in landfill."

    In the end, Mr. Stevens urged the USTR place tariffs on Chinese truck tires "that meet the recommendations of the ITC study of between 23 and 65 percent."

    In the opposing corner of the truck tire debate was Mr. Weller, who argued that the U.S. tire industry doesn't have the capacity to cover the potential loss of millions of units of tires from China, which would result in product shortages and higher prices for trucking firms.

    Mr. Mangola testified that the vast majority of tires imported from China compete in Tiers 3 and 4 and are purchased predominantly by lower-income households. Adding more import tariffs on top of the existing antidumping and countervailing duties on consumer tires would "have harmful effects on almost exclusively the lowest-income tires consumers," he said.

    In general, he said tires as a product category "are inconsistent with USTR's objectives behind the Section 301 measures, and are the type of tariff that USTR should avoid, given how harmful they will be to budget-conscious consumers."

    Tires, he added, are unrelated to China's "Made in China 2025" policy and thus are not the type of tech-heavy products that are the target of this investigation.

    Ultimately, he argued, "taxing consumer products like tires can be dangerous. USTR should act deliberately when considering a tariff that would keep a Dad from putting new tires on the family SUV. The safety of American drivers and their passengers should not be forsaken in favor of uncertain U.S. foreign policy objectives."

    Mr. Zhang, president of Transamerica Tire, called on the USTR to exempt specialty trailer, passenger and truck/bus tires from the Section 301 list, primarily for two reasons: the manufacture of tires does not involve the type of "cutting-edge, advanced or leap-frog technologies" that Section 301 concerns; and the economic harm that will result should tariffs at be imposed, regardless of the level (10 or 25 percent).

    Transamerica is a Memphis, Tenn.-based importer and distributor of specialty trailer, passenger and truck/bus tires.

    Mr. Zhang noted that about 95 percent of the ST-type trailer tires sold in the U.S. are imported from China, with little if any domestic production and only limited capacities for such tires outside of China, even in Southeast Asia. ST trailer tires currently are subject to a 4-percent duty.

    Considering there are "very limited alternative sources" of supply for specialty trailer tires, distributors of such tires in the U.S. will continue to source these tires from China, he said, and are expected to pass the increased costs onto U.S. consumers, "who will ultimately bear the brunt of the cost increases."

    As for passenger tires — which already are subject to both antidumping and countervailing duties — adding the proposed Section 301-related tariffs would result in "immeasurable ripple effects" throughout the U.S. economy, he added.

    His thoughts on truck/bus tires are similar: "If the tariffs are imposed on these products, again I expect that U.S. businesses will ultimately pass the cost increases onto U.S. consumers as they cannot absorb the added costs."

    Mr. Rook of Tube & Solid Tire appealed to the USTR to exempt a range of specialty tires, including all-terrain vehicle, lawn and garden, trailer and solid industrial tires, because there is no viable alternative U.S. production option for small, bias-ply and/or solid industrial tires.

    Mr. Rook said his company believes the tariff will not eliminate Chinese product from the marketplace, only drive up costs for the consumer.

    "A tariff on these goods will have an immediate effect on our customer base in the energy, mining, trucking and agriculture industries," he said. "These industries rely on us to provide high-quality cost-effective products to maintain their productivity while shoring up their bottom line."

    Mr. Rook said San Antonio-based Tube & Solid Tire has approached manufacturers in South Korea, India and Poland about producing tires, but to no avail.

     MEMA's Ms. Wilso— said her organization would urge the USTR "to reconsider tariffs as they will have a significant negative impact on consumers and U.S. vehicle parts suppliers. This will impact employment and growth, in turn, weakening the U.S. economy. Alternatives, such as continued negotiations, should instead be considered."

    While MEMA supports "aggressive policies" to protect intellectual property rights in dealings with China, Ms. Wilson said the trade group suggests that a "targeted approach" on China's policies will be less harmful than imposing blanket tariffs on a wide range of vehicle parts and encourages continued negotiations with China.

    MEMA is "very concerned about the impact this third tranche of tariffs will have on the American consumer," she said.

    "Consumers rely on these parts and subcomponents to keep their vehicles safely and properly maintained for on-road use. A 25-percent tariff on these parts will be passed downstream to consumers and service facilities. This harms the consumer who relies on affordable and convenient service options to maintain vehicles."

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