By the middle of September, a decision by President Obama may force Americans to spend more for a new set of tires, potentially restrict supplies and could further damage the nation’s economy.
In a less than well publicized case involving Chinese tire imports, Obama must decide on an International Trade Commission recommendation that would add a 55% tariff on low-end automobile tires imported from China.
The ITC arrived at their recommendation after a complaint was filed by the United Steelworkers union, which claimed that the import of Chinese tires in recent years had cost more than 5,000 jobs.
Obama doesn’t have to follow the ITC’s recommendation, and he’d be well-served not to.
With U.S. tire manufacturer’s like Goodyear and Firestone abandoning the low-end tire market over the past several years, tire distributors and retailers have been forced to import more from China.
Only a few U.S. tire manufacturer’s continue to produce low-end tires. Cooper Tire and Rubber Company of Findlay, Ohio, is one such producer, providing private label brand tires to distributors across the U.S.
However, Cooper has been unable to meet the demand for those tires and has actually reduced production capacity by closing its Albany, Georgia manufacturing facility.
Cooper has other manufacturing facilities located in the U.S. at its corporate headquarters in Findlay, Tupelo, Mississippi and Texarkana, Arkansas.
Ironically, Cooper owns several manufacturing plants in China and exports those tires to the U.S. In 2006, Cooper purchased a majority interest in China’s third-largest Chinese-owned tire manufacturer.
In addition, Cooper has another facility located in Kunshan and other “various business entities” operating in China, according to the company’s website.
If Obama upholds the ITC’s recommendation, Chinese tires face a tariff of 55% in the first year, 45% in the second year and 35% in the third year, after which the tariff would be eliminated.
According to a Wall Street Journal report, the value of Chinese tire exports to the U.S. totaled $1.8 billion last year in a market segment worth $16 billion annually.
“Spending $400 to replace tires is a major expense for some folks,” said Jim Mayfield, president of Del-Nat Tire Corporation of Memphis, Tennessee, a large importer of Chinese tires. “This action would cost small tire retailers jobs and their customers money.”
Ken Beil, Del-Nat’s Traffic Manager, studied the cost of several tire brands imported from China factoring the proposed 55% tariff suggested by the ITC.
Beil found that even with the additional tariff, many of the tires imported from China would still cost less than those produced domestically.
The economic impact wouldn’t end at tire costs and lower inventory levels either.
Trucking companies doing business with distributors like Del-Nat could see a huge loss in revenue as a result of higher tariffs.
With an already weakened economy and lower freight volumes among the factors affecting the transportation industry, over-the-road truckload, LTL and drayage carriers could see a substantial decrease in traffic if Obama decides to implement the tariff.
Obama’s decision could limit inventory levels as a result of fewer imports. Moreover, the additional tariffs will do more harm than good, according to Rutgers University economist Thomas J. Prusa.
Prusa, testifying before the ITC on behalf of importers, said: “tariffs could cost 25,000 U.S. jobs and force consumers to spend $600 million to $700 million more a year on tires.”
The ITC doesn’t calculate tariffs’ economic impact when studying complaints, something the Obama administration would be wise to do.
[...] Obama decision may drive up the cost of tires — (MoonDog) [...]