Officials Hear Pros, Cons Of Curbing Chinese Tire Imports

Officials Hear Pros, Cons Of Curbing Chinese Tire Imports

Officials Hear Pros, Cons Of Curbing Chinese Tire Imports
By Judith Burns

WASHINGTON — In a case that is the first major test of the Obama administration’s stance on Chinese trade, U.S. officials heard conflicting arguments Friday on imports of low-priced Chinese tires, with labor unions urging hefty tariffs that distributors said would punish U.S. consumers who can’t afford premium tire products.

Jobs and even lives are at stake, according to both sides in the debate. The U.S. International Trade Commission ruled this summer that Chinese tire imports are disruptive to the U.S. market and endorsed tariffs; the Office of the U.S. Trade Representative is gathering evidence before advising President Barack Obama on potential remedies. Obama’s mid-September decision could restrict Chinese tire imports, call for monitoring, or leave the market as it is.

United Steelworkers Union President Leo Gerard, speaking to a panel of administration officials at Friday’s hearing, said if the U.S. doesn’t clamp down on cheap Chinese tire imports now, Chinese manufacturers would look to make inroads into premium tires, and within five years, “there will be virtually no American tire industry left.”

Gerard urged U.S. trade officials to provide “meaningful relief” against Chinese tire imports, saying that would create jobs and prevent layoffs at U.S. tire plants. He supported the ITC’s plan to impose a 55% tariff in the first year, followed by tariffs of 45% and 35% in the two following years.

“Tariffs will not create manufacturing jobs in the United States,” countered Jim Mayfield, president of Memphis-based Del-Net Tire Corp., which sells private-label tires, including Chinese-made imports. He said U.S. tire makers such as Bridgestone/Firestone, Goodyear Tire & Rubber Co. (GT.N), Michelin (ML.FR) and Cooper Tire & Rubber Co. (CTB) are focused on more profitable premium tires and have ceded the low end of the market to private-label brands imported from China and other low-cost manufacturers.

If tariffs are imposed, Mayfield said the biggest hit would be felt by American consumers who buy $50 Chinese-made tires and can’t afford U.S. brands that cost upwards of $150. He said some low-income consumers already are stretching their tires well beyond their useful life, coming in “with duct tape wrapped around the tire” to cover fraying steel belts.

Mary Xu, Deputy Secretary General of the China Rubber Industry Association rejected tariffs, noting there has been no finding of illegal action by Chinese tire makers, such as dumping products below cost. Any penalties would amount to trade protectionism, said David Spooner, with the law firm of Squire, Sanders & Dempsey, who represents the Chinese tire makers.

“This is an awful first test case,” Spooner testified.

Penalizing Chinese-made tires won’t help U.S. employment, just shift business to manufacturers in Brazil, Mexico and elsewhere, opponents assert. Mayfield said tire distributors will have to scramble to find alternate suppliers, and if they can’t act fast enough, they’ll go out of business. He said even a 25% tariff would preclude U.S. purchases of low-end Chinese tires, but he indicated that tire sellers could probably handle tariffs of 8% to 10%.

Thomas Prusa, a Rutgers University economics professor who studied the likely effect of tariffs for opponents, expects a dozen to 25 jobs would be lost for every job that tariffs create, costing $300,000 for each job saved. Prusa told trade officials that there’s no sign that U.S. companies plan to revive U.S. production of low-cost tires after shifting some of that work overseas, including to China.

No U.S. tire companies testified at the hearing, which labor union officials said shows the U.S. firms fear “retaliation” by China.

Not so, said Marguerite Trossevin, with the Washington law firm of Jochum Shore & Trossevin, who spoke on behalf of the American Coalition for Free Trade in Tires. She said U.S. tire makers could have provided confidential input, but did not.

The real reason for American tire makers’ silence: “They don’t care about this segment,” said Trossevin. “They don’t compete with those tires.”

U.S. auto makers are asking to be exempt from any tariffs on factory-installed tires, while makers of temporary spare tires, known as “donuts,” requested similar relief, saying they know of no U.S.-made replacements.

Labor officials blasted U.S. auto makers for taking such as stance after accepting federal handouts, with Gerard saying he finds it “utterly disgusting, that we saved them and their objective is to put Chinese tires on the cars we saved.”

The steelworkers union filed the case this spring under a U.S.-China trade law provision that allows domestic producers to seek relief against imports without a finding of wrongdoing. China was the largest source of car tires imported to the U.S. in 2008, shipping nearly 46 million tires with a value in excess of $1.7 billion, according to the union. It said imports of cheap Chinese tires nearly tripled by volume between 2004 and 2008, while domestic production fell by more than 25%, according to the union, which is seeking to reduce imports to 2005 levels.

Source: Global Finance Magazine, August 07, 2009

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