Tariff on Chinese Tires Makes both Beijing and some US Consumers Unhappy

By Brendan Moore

09.14.2009

Chinese flag - smallChinese government officials are making a lot of noise about the 35% tariff imposed by President Obama last week, mentioning that they just might investigate dumping of chicken products and automobile parts from the US. They also were fueling speculation they might file a counter-complaint with the World Trade Organization (WTO).

It was the WTO that recommended a 55% tariff on Chinese tires to the United States government. The Obama administration demurred, and instead went with the lower 35% tariff.

Some trade experts say the Chinese are simply blustering and that the dispute will blow over fairly quickly, but others are not so sure. Some trade analysts fear a tit-for-tat environment could establish itself between China and the US, and quickly spiral out of control. Given the fragile global economy, that prospect is not an encouraging one.

In a statement, Chinese Minister of Commerce Chen Deming said the Obama decision “sends the wrong signal to the world. This is a grave act of trade protectionism. Not only does it violate WTO rules, it contravenes commitments the U.S. government made at the G20 financial summit.”

This year’s G20 Summit is coming up this week in Pittsburgh, and China is dropping hints that the US government could make it up to China somehow during the summit.

Meanwhile, in the US, tire industry analysts say the bottom end of the consumer tire market is going to be decimated in the coming months as supplies dry up. Approximately 40 million Chinese tires came to the US last year, which accounted for around 17% of the overall American market. Chinese tires typically sell for around $50-$60 USD per tire, compared to premium tires, which sell for around $200-$250.

US tire manufacturers cannot produce low-end tires and make a profit. Tire manufacturers in Brazil and Indonesia can pick up the slack, but it will take months to fill the overseas pipeline. US tire manufacturers also have Chinese factories that produce tires for them, most of which are sold through private-label agreements and/or discount and generic brands. That production will be affected just as the other production from China will be impacted, throwing into disarray the supply agreements the US tire companies have with their low-end distributors.

As supply dwindles in the near future, consumers desiring low-end tires will have to pay more for those tires – not as much as they would pay for premium tires, but still more than the current pricing.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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5 Comments

  1. Can’t imagine too many of your readers buy cheap tires for their cars, but I can see how this will affect the market. Had no idea the Chinese sold so many tires here. Makes me a little nervous to be on the road, now that I know, since the quality of other Chinese products is so unpredictable.

  2. No huge loss if we can’t buy Chinese tires here in America.

  3. I am going to commit suicide 🙂 No seriously, what xxx in the world somebody may want to buy Chinese tires, to commit suicide? BTW I bought Yoko Avids for about $70 a piece and they were not made in China.

  4. I do not intend to put Chinese-made tires on any car that my loved ones or I will be driving. I vetoed the purchase of a Chinese-made bunk bed for my kids a couple of weeks ago after having visions of the legs collapsing while one of them was in the bottom bunk. I don’t think that’s beyond the realm of possibility.

  5. Send us those cheap tires from Brazil then. I trust them a lot more than the Chinese factories.

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