Tire tariff: Opening salvo in trade war?

Sept. 18, 2009
There may well be more to the tariff being placed on tires made in the People’s Republic of China this month than the impact it will have on the purchase price of such tires for owners of passenger cars and light trucks

There may well be more to the tariff being placed on tires made in the People’s Republic of China this month than the impact it will have on the purchase price of such tires for owners of passenger cars and light trucks. The big concern about the institution of any tariff is whether or not it winds up the first shot fired in a trade war between two nations. Once such a diplomatic dispute is under way, escalation can set in rapidly and soon other industries are impacted.

The tariff takes effect on September 26 and will affect primarily tires sold at the lowest price points for cars, SUVs, pickups and vans. The tariff is multi-year, imposing a 35% duty in the first year, 30% in the second, and 25% in the third. But under the 421 Safeguard provisions of the World Trade Organization, President Obama can revisit the decision after six months and then modify, remove or leave in place the tariff decision.

Not surprisingly, the Chinese government adamantly opposes the U.S. action as unwarranted protectionism. According to an online report posted by its official press agency, the Xinhua News Agency, the measure “has triggered concerns about the rise of protectionism in the lead-up to the Pittsburgh G20 [The G-20 is The G-20 is made up of the finance ministers and central bank governors of 19 countries] meeting later this month.”

The Xinhua piece pointed out that “China on Monday asked for talks with the United States on the tire tariff issue in accordance with the World Trade Organization (WTO) dispute settlement process… [and that ] “On Sunday, China launched anti-dumping and anti-subsidy investigations into U.S. chicken products and an anti-subsidy investigation into automobiles produced in the U.S. “

Meanwhile, the Bowie-MD Tire Industry Assn. (TIA) has declared it is “deeply disappointed with President Obama's decision” to impose the tariff. "TIA believes this was a politically motivated decision that will end up costing more jobs than it saves. These tariffs will not bring back the jobs that the union [The United Steelworkers] claims have been lost; it will not create any new tire manufacturing jobs, and it will most likely result in the loss of thousands of retail tire industry jobs here in the U.S., affecting everyone from the shop that services your tire to the tire wholesalers - many of whom are small businesspeople struggling to stay afloat in this economy,” said TIA executive vp Roy Littlefield.

Littlefield went on to say that “tire manufacturers made the decision years ago to shift production of these lower-cost tires out of the U.S. All this action will do is force the tire manufacturers to shift production of these lower-cost tires to other countries, such as Brazil and India. The bottom line here is that despite what the union and the President believes, these jobs are not coming back, and now we can expect more job losses here in our already struggling economy."

According to the United Steelworkers (USW), which pushed for the tariff, “When China joined the WTO in 2001, it agreed that other WTO members, including the U.S., would have the right for 12 years to impose safeguard relief on goods from China when imports of those goods increased rapidly and caused injury to domestic industries. .. [and] China does not have the right to retaliate against actions that are WTO-consistent.”

Aaron Murphy, vp of China Manufacturers Alliance (CMA), which markets Chinese-made Double Coin commercial truck tires here, told FleetOwner that “there’s a lot of politics driving this. There are [421 Safeguard] provisions that allow the U.S. to review the action in six months. This was definitely a political [move] vs. coming out of an economic issue… and so it will take the governments talking to each other” to resolve it.

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