Issues Brief: Tariffs on Chinese Tires 10 Months Later—Right or Wrong Remedy?

Issues Brief: Tariffs on Chinese Tires 10 Months Later—Right or Wrong Remedy?

August 2010

 

Probably the wrong remedy. US imports of the low-end tires involved in the case are up substantially—but have shifted from China to other countries. Prices are up, say tire distributors, impacting American pocketbooks. Tire manufacturing jobs continue their long, steady decline. All of this shows that tariffs on Chinese low-end tire imports likely have nothing to do with creating American jobs.

 

In short, the evidence available suggests what we would expect: Protectionist tariffs are usually bad policy for Americans. But just to be sure, the International Trade Commission (ITC) should conduct a fact-based investigation into the impact of the 421 tire tariffs before any further such actions are contemplated.

 

Background

 

On September 11, 2009, the Obama administration announced its decision to impose punitive tariffs on low-end tire imports from China under a statute known as Section 421 of the Trade Act of 1974. In addition to an existing 4 percent import duty, tariffs were increased by rates of 35 percent for the first year, 30 percent the second year, and 25 percent the third year, because imports of Chinese tires were deemed to be excessive.

 

China agreed to be subject to Section 421 as a special concession when it joined the World Trade Organization (WTO) in 2001. The statute allows the United States to impose duties or quotas to counter “market disruption” caused by rapidly increasing imports from China. Unlike other trade remedies under US law, the imports don’t have to be proven to result from dumping or other illegal actions. In other words, if Americans simply buy enough of a product from China to drive up imports, the requirement can be met. The United States has the right to use this special China “safeguard” provision through December 11, 2013. United Steel Workers, which filed the tires case (not US tire manufacturers), argued that the tariffs would restore US jobs and increase US production of low-end tires.

 

What have the tariffs accomplished?

 

To begin with, though imports of Chinese tires are indeed down (as expected with a sizeable tariff imposed), imports of tires from other countries are up even more—suggesting that suppliers are shifting production or sourcing to other countries rather than back to the United States. Comparing the first half of 2010 with the same period in 2009, total US tire imports affected by the 421 tariff are up 21 percent by volume and 30 percent by value[1]. China’s share of those imports has dropped from a peak of 45 percent in August 2009 to just 24 percent in June 2010.[2] In other words, Americans are buying more tires from overseas—we’re just getting the tires from places other than China.

 

And we’re apparently paying more for them. Tire prices overall have risen 10 to 20 percent, according to Tire Business.com.[3] Though many factors, such as the cost of rubber, affect the price of tires, increased tariffs are clearly an important one. Shifting imports to higher-cost suppliers means just that—higher costs (and prices). For tires still imported from China, manufacturers and retailers have absorbed some of the 35 percent tariff, but much of the tariff is passed on to the consumer.

 

What about US tire output and jobs? The US Census Bureau, which tracks industrial activity in its Manufactures’ Shipments, Inventories, and Orders Survey, does not produce manufacturing output data for the detailed level of the low-end tires specified in the 421 tariff decision (and won’t have data even for tires overall for the relevant period until 2012). We suspect overall US tire manufacturing may have increased in recent months as the economy and auto output has recovered. But that doesn’t help us understand the impact of the 421 tariffs on low-end tire production.

 

The employment data is a little clearer. Information on low-end tire manufacturing jobs is not available, but data from the US Bureau of Labor Statistics shows that tire manufacturing employment overall is down 10 percent

in the first five months of this year versus the same period last year, prior to the tariffs. There have been a few announcements of tire manufacturers expanding production, but they are being made for higher-end tires and specialty products like aviation tires – not the products covered by the tariffs.  

 

In fact, this downward trend in tire manufacturing employment has been steady over the past decade, and the 421 tariffs do not seem to have made an impact (see Table). As a consequence, the employment trends do not seem to indicate a positive impact from the tariffs, or indeed any link at all between the tariffs and American jobs.

 

Claims by some advocates that the 421 tariffs have restored health to the low-end tire manufacturing industry and created jobs are simply not supported by the available facts. The data that is available raises questions about whether the tariffs have done more harm than good to the US economy. We need objective analysis and appropriate monitoring to understand the full impact of these tariffs on jobs and on the pocketbooks of American households.

 

And that is the point of this note. Section 421 gives the US president the ability to request that the ITC provide a report on the effect of changes in tariffs on consumers and job creation. The statute requires that ITC collect data so it can quickly respond to such a request from the president. The US-China Business Council calls for the president to direct the ITC to report objectively and quickly on the impact of these tariffs, and to not proceed with any additional 421 decisions (or even other questionable tariff actions that seek to address bilateral trade issues with China) until such an impact analysis is done.

 

 

US Tire Manufacturing Employment, January–May Averages per Year (workers in thousands)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

86.8

84.7

76.0

73.1

69.1

67.8

64.0

59.3

60.3

55.4

49.8

Source: US Bureau of Labor Statistics

 

 

 

[1] Value is computed using ITC data for customs value plus calculated duties of US imports for consumption under HTS tariff classifications cited in the petition: 4011.1010, 4011.1050, 4011.2010, and 4011.2050.

[2] Based on volume computed using ITC data for first unit of quantity of US imports for consumption under HTS tariff classifications cited in the petition (see above).

[3] Davis, Bruce. “China tire imports dip, but not as far as predicted.” Tire Business.com. May 12, 2010.