Tariff on Chinese Tires Makes both Beijing and some US Consumers Unhappy
By Brendan Moore
Chinese 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.
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