NEW YORK—The Obama administration plans to impose steep import duties on Chinese made automobile tires over three years, following reports that a deluge of Chinese tire imports hurts the domestic market. In retaliation, China on Monday promised to investigate possible “dumping” of U.S. auto and poultry products.
President Barack Obama last Friday signed an order to enact punitive tariffs over three years. The tariff will be 35 percent during the first year, 30 percent the second year, and 25 percent the third year.
When Obama campaigned for the presidency, he talked tough on trade, promising to revise the North American Free Trade Agreement as well as take China to task on abiding by World Trade Organization rules and regulations.
But the President has been quiet on the trade front, until now.
The president’s order is based on calls from the U.S. International Trade Commission (ITC) and labor unions. The ITC found that Chinese tire imports have risen from 14.6 million in 2004 to 46 million in 2008, displacing more than 5,000 workers and forcing four U.S. tire plants to shut down.
"These remedies are a necessary response to the harm done to U.S. workers and businesses, designed to achieve the objective of curbing what the ITC determined was a harmful surge of Chinese tires into the U.S. market," said U.S. Trade Representative Ron Kirk in a press release.
The ITC began investigating the U.S. tire market after the U.S. Steelworkers Union (USW) filed a complaint with the office.
“The International Trade Commission agreed with the USW’s view as to the nature of China’s surging exports, but decided that relief in the form of tariffs would best respond to China’s actions,” USW President Leo Gerard said in a statement.
“China and its agents here in the U.S. tried every trick in the book to protect their interests,” Gerard continued. “They hired former government officials and paid them countless dollars to lobby their case. They paid for trumped up studies to support their efforts and used front groups to lobby their cause and to influence politicians.”
‘Dumping’ of Automobiles and Poultry?
In a statement, the Chinese Ministry of Commerce said it “strongly opposes” the decision, and called the measure “protectionist.”
And three days after President Obama signed the order, China on Monday announced its own investigation into U.S. “dumping” of automobile and poultry products in China.
Dumping refers to selling goods at less than the cost of producing them to drive out competition.
According to the Web site of the Ministry of Commerce, China is being hurt by “unfair trade practices” by U.S. exporters. Beijing is also looking into U.S. subsidies for its automakers.
Economists fear that the tit-for-tat between the two nations could hurt global competitiveness by ushering in a new era of protectionism.
The topic is politically sensitive as countries are scrambling to protect domestic jobs in an already delicate global economy. And the recent tariff war comes two weeks prior to the G-20 meetings in Pittsburgh amidst the already strained U.S.-China trade relations.
Manufacturers Oppose Tariff
But the U.S. tire industry is opposing the measure, unsurprisingly, as most U.S. tire manufacturers have already moved their production overseas, mostly to China.
"The duties proposed by the commission are so high that it will drive up prices to the point that U.S. consumers won't have access to affordable tires,” said Dennis King, vice president of Dunlap & Kyle Co., in a statement. “Eventually, we will have to find other sources for inexpensive tires, but it won't be here in the United States because they don't make them.”
The tariff would punish Chinese manufacturers as well as U.S. companies with production facilities in China. The tire industry argues that U.S. consumers will further look at foreign-made tires—which could lead to business closures—as the import tariff would make U.S. tires too expensive.
But the USW, which represents 15,000 employees at 13 tire plants in the U.S., argued that cheap imports were forcing U.S. factories to close, eliminating jobs.
U.S. Tire Industry Suffering
The U.S. tire industry depends on two revenue streams—new car sales and tire replacement sales, which have both taken a hit in the recession. Industry insiders say that there’s currently too much capacity and not enough demand among consumers.
“In 2008, the tire industry saw manufacturing capacity shrink in an effort to reconcile supply levels with the current demand. Michelin scrapped plans to build a new plant in Mexico, Kumho suspended the construction of a new plant in Georgia, Cooper closed down their Albany, Ga. facility, and Bridgestone announced the possibility of eliminating passenger and light truck tire manufacturing at their plant in La Vergne, Tenn.,” according to a report from Future Tire, a Bethpage, N.Y.-based tire wholesaler.
Three more closures are planned for 2009, according to information obtained by the Wall Street Journal.
The Akron, Ohio-based Goodyear Tire & Rubber Co. is the largest tire manufacturer in the United States, employing roughly 10,300 USW union workers in seven plants throughout the country.
