By on September 14, 2009

Our man Bertel Schmitt sees President Obama’s decision to place a 35 percent import tax on Chinese-made tires as counterproductive political pandering. Unless the Prez decides to please his friends in The United Steel Workers (ex-employer of the current chief of the Presidential Task Force on Automobiles, Ron Bloom) by slapping a tax ALL imported tires, production of said rubber will simply shift to another low-wage country. As the Wall Street Journal points out, US tire sizes mean that could take a while. The WSJ counts the cost to consumers.

The tariffs, which apply to all Chinese tires, will cut off much of the flow of the more than 46 million Chinese tires that came to the U.S. last year, nearly 17% of all tires sold in the country . . .

“I think within the next 60 days you’ll see some pretty significant price increases,” said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for “entry-level” tires could increase 20% to 30%.

Demand meets diminished supply. Which also means . . .

There could also be shortages, Mr. Mayfield said, as existing supplies run low and importers have trouble finding alternative sources. Many importers stopped placing orders for Chinese tires several weeks ago, fearing they might end up ordering tires that would carry a hefty tariff by the time they arrived in U.S. ports.

And speaking of unintended consequences, the domestic tire industry Mr. Obama seeks to protect is not prepared to handle that demand, should the President decide that a national debate over America’s industrial and trade policy should supplant/augment the debate over health care and cap and trade. Hang on, isn’t Bloom the new head of Industrial Policy? Anyway, like I said, you can’t fix stupid.

Meanwhile, a massive reduction in capacity is taking place. In 2005, North America had the capacity to produce 370 million tires. Today, that number has been cut by more than 40 million — and a further 35 million are in the process of being eliminated.

The chance of that trend being reversed by this tariff are what, exactly?

Update: China is now moving towards imposing tariffs on chicken and auto parts imported from the US. It’s a little tough to imagine much of a market for American chicken and auto parts in China, given the population of Chinese chicken and the wide array of auto parts produced there, not to mention that America buys $4.46 worth of Chinese stuff for every $1 worth of American stuff bought by the Chinese. Nevertheless, $800M worth of American-made auto equipment and $376M worth of starred-and-striped chicken meat went to China between January and July of 2009, during which time China sent America $1.3B worth of tires.

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40 Comments on “Trade War Watch 3: U.S. Tire Prices to Rise 20–30%...”


  • avatar
    vvk

    Chinese tires are unsafe. Even if you don’t buy them, a lot of other people will. I would rather pay more for tires than to be exposed to SUVs/pickups around me with cheap Chinese tires.

    I made the mistake of buying Chinese made Kumhos once. Never again. They cost me far more than what I saved by buying cheap tires.

  • avatar
    rls1400

    It will be great for the steel workers when they put a 35% import tax on American vehicles in China.

  • avatar
    PeteMoran

    More expensive tires/tyres? Perhaps people will drive less and use less fuel. Makes sense to me.

  • avatar
    NulloModo

    I’m all for sticking it to China, but tires are already ridiculously priced. I can’t figure out why it often costs over $100 just for a chunk of rubber with a steel liner on the inside.

    While there might be some R&D involved in tire compounds, by now they should have been able to find the optimum blend of wear resistance and road-holding. As for tread patterns, one would think that with computer modeling being where it is one could just input some criteria into a program and have it spit out the most effective tread setup.

  • avatar
    John Horner

    A projected 30% increase in prices on the very lowest grade of tires is hardly the same thing as an across the board 30% increase in tire prices.

    You are not going to see any tire shortages or massive price increases. The world is swimming in excess tire production capacity.

    But hey, it isn’t like the Wall Street Journal has a political motivation or anything.

  • avatar
    John Horner

    Here is some recent data on trade between the US and China:

    Jan ’09 through June ’09 cumulative:

    US-to-China: $35,662.6 million
    China-to-US: $159,130.8 million
    Difference: $-123,468.2 million

    http://www.census.gov/foreign-trade/balance/c5700.html#2009

    Does any thinking person really think this kind of thing can go on forever without disastrous consequences?

  • avatar
    GS650G

    This administration hates cars and it shows. Do you think they care if consumers pay more for their tariffs? Their answer is to take the bus.

  • avatar
    PeteMoran

    @ NulloModo

    …. one would think that with computer modeling being where it is one could just input some criteria into a program ….

    Computer model? That wouldn’t work as you’d loose all those customers that deny climate models when it suits them.

    I prefer my tires/tyres to have pure guess work.

  • avatar
    Ingvar

    “Chinese tires are unsafe.”

    As opposed to real homebrewed American Firestones?

  • avatar
    seabrjim

    What happened vvk? I run Kumho solus kr 21’s on my colorado 4×4.

  • avatar
    chuckR

    nullomodo

    Your optimum tire may not be mine. You could make the same standardization argument about almost any product. There are durable and decent-performing tires at moderate prices – all season tires – that should meet your criteria.

    As for potentially substandard Chinese tires, please remember the infamous Ford Explorer/Firestone tire debacle. If you want to sell tires in the US, you plan on somebody running them bald, underinflated, overloaded at high speeds on a hot day. The Won should have requested tougher tire standards overall, but that may have gored some domestic oxen… The Firestones were domestic, weren’t they?

  • avatar
    superbadd75

    The problem isn’t the additional cost, or even the reduction in capacity. It’s the effect that this will have on trade with China. China is the source of a lot of the goods we purchase every day, goods made there for American owned cmpanies for distribution around the world, and they import goods from our shores as well. If there is any country that we don’t need to start a trade war with, it’s China.

  • avatar
    fincar1

    This is what we get, people, when we elect as president a law professor who doesn’t know s4 about economics, won’t listen to anyone, and hasn’t had a new idea in twenty years.

  • avatar
    Dick

    “Chinese tires are unsafe.”

    “As opposed to real homebrewed American Firestones?”

    I believe that’s referred to as ‘Checkmate’.

  • avatar
    eamiller

    @vvk
    I have only anecdotal evidence to back up my claim, but it sounds like you had a bad batch of Kumhos. Between myself and 4 close friends, we have all used Kumho tires with nothing but good things to say about them (2 SPTs, 1 Solus, and 1 Supra). My summer Kumho SPTs have been wonderful tires, both on the street and on a real track (rain traction is amazing on the track).

    Plus, they are dirt cheap for performance tires and aren’t “no name” “entry level” tires that this tariff would likely affect. Plus, Kumho is a Korean company, so it is unclear how this would affect them, even if their factories are in China.

  • avatar
    krazykarguy

    Kumho tires are made in South Korea, not China.

    The Nordman 2 snow tires I run on my Saab 9-2x are by far the best snow tire I’ve ever used, and they are made in “PRC” or People’s Republic of China.

    These Chinese tires are required to met DOT and FVMSS standards before being sold in the US, so “unsafe” is not correct at all.

    Also – the last time I checked, duty rates on tires imported from China were 4%, a 35% increase makes that 5.4%. Nominal at best.

  • avatar
    PeteMoran

    @ John Horner

    Difference: $-123,468.2 million

    As big as that!?!?! Seems like a good place to start.

    Clever President indeed.

    (BTW, down from $-268,039.8 million in 2008).

  • avatar
    geeber

    PeterMoran: Computer model? That wouldn’t work as you’d loose all those customers that deny climate models when it suits them.

    There is a considerable difference between using computer models to forecast something as complex as climate and something as simple as tire performance.

  • avatar

    krazycarguy:
    Also – the last time I checked, duty rates on tires imported from China were 4%, a 35% increase makes that 5.4%. Nominal at best.

    It’s 35 % on top of the 4 %. A total of 39%

  • avatar
    wsn

    vvk :
    September 14th, 2009 at 9:42 am

    Chinese tires are unsafe.

    ——————————————

    If that’s indeed true, why not just prove the “fact” with lab or statistical evidence and ban them for not meeting safety standards?

    Why use an increased tariff and appear to be trade-protectionist?

  • avatar

    Not that I am for tariffs, but I don’t see the big deal here: the price floor has gone up, but not everyone buys the lowest common denominator for their ride.

    Then again, I buy cheap. I buy cheap Kumhos for cars, but (according to the sidewall) they came from Korea. And they were both high quality and one of the cheapest tires I found on the Internet and in local retail shops like Discount Tire.

    Its funny, I don’t see Chinese branded tires in Houston, but I see plenty off odd names on tires in California. Maybe every tire in WalMart is Chinese (I haven’t checked) but I don’t see this affecting some parts of the country at all.

  • avatar
    Robbie

    @ John Horner, Petemoran

    Difference: $-123,468.2 million. Does any thinking person really think this kind of thing can go on forever without disastrous consequences?

    As long as we are selling Windows 7 licenses and Hollywood movies to the rest of the world and create a surplus for roughly this amount, this can easily go on forever.

    You wouldn’t want Manhattan to clear some skyscrapers and start farming corn, just because of its deficit on importing flour…

  • avatar
    wsn

    John Horner :
    September 14th, 2009 at 10:03 am

    US-to-China: $35,662.6 million
    China-to-US: $159,130.8 million
    Difference: $-123,468.2 million

    ————————————————

    That’s called “the American lifestyle”, i.e. spend spend and when the economy collapses, spend more.

    That saved American asses for a long long time. You see, the Chinese shipped the cheap products here in exchange for green paper. And they don’t actually spend that paper. If either:

    1) They start to spend it, or
    2) Such trade are blocked by protectionist policies

    then, we will see a massive inflation and Obama/Bernake will face an even greater challenge. If they increase interest rate to battle inflation, the not yet recovered economy will sink further. If they let inflation run, the American dollar will be in the toilet, and the global dominance of the US no longer holds.

  • avatar
    vvk

    > seabrjim :
    > What happened vvk? I run Kumho solus kr 21’s on my colorado 4×4.

    KR-21 is the one I had on my SAAB. I have never been a fan of expensive tires. On that car I have had the original Michelins (hated the handling but traction was very good), Dunlop SP Sport A2 (great at everything but became noisy with wear) and Firestone Affinity LH30 (very quiet and comfortable). I was going to sell the car, so I bought Kumhos — they seemed competitive and were very inexpensive. They were by far the worst tires I have ever had. Inferior dry traction, dangerous wet traction. This was very noticeable: I could no longer take highway off-ramps at my usual speed in the dry — had a few surprises the first couple of times. In the wet it was plain scary — very poor traction, especially at high speed.

    One day I was driving after a short summer rain doing 35 mph in 40 mph zone. The car in front of me was stopped waiting to make a left turn. I put the car in lower gear (downward slope) well ahead of time, about 200 yards. After I saw all oncoming traffic clear, I assumed that the car in front of me would make the left turn. However, he decided to let someone else invisible to me pull into the road before making his left turn. At the point I was back up to 35 mph and about 70 yards away from the stopped car in front. I lower my gear and start braking — with plenty of room to stop, or so I thought. This should have been a stress-free situation if I had good tires. Once again, I was taken by complete surprise when ABS turned on and I discovered that the tires provided ZERO traction on the wet pavement going downhill. The car was basically out of control, sliding with ABS fully engaged. I had no choice but to drive it off road to avoid hitting the stopped car HARD.

    After this, I sold the Kumhos on craigslist for a nominal sum (they were basically brand new) and bought Michelin Primacy MXV4 — these were by far the best tires I have ever had. Excellent handling (100 times better than Michelin Energy MXV4+), outstanding traction on all surfaces (wet, snow, ice), quiet, comfortable, great steering feel. Well worth their high price, IMHO.

  • avatar
    vvk

    > krazykarguy :
    > Kumho tires are made in South Korea, not China.

    Just like not all Nokians are made in Finland, not all Kumhos are made in S. Korea. Many are made in PRC.

    > The Nordman 2 snow tires I run on my Saab 9-2x
    > are by far the best snow tire I’ve ever used,
    > and they are made in “PRC” or People’s Republic of China.

    Yes, Nokian tires may be excellent wherever they are made. But they also cost a lot regardless of their country of manufacture. They are premium tires sold at premium prices.

  • avatar
    PeteMoran

    @ geeber

    something as simple as tire performance

    How many variables are you controlling for in designing a tire/tyre? Having applied for a job at a World Rally Team as a differential software engineer, I did see some of the modeling their partner (Michelin) was attempting.

    Off the top of my head; wear, temperature, pressure, material strength, distortion, pattern, friction, surface character, wet/dry and directional forces. Any I missed?

    For climate; energy input, reflection, absorption. It’s much more simple CFD (computational fluid dynamics) and standard physics. Easy stuff these days.

    You could near perfectly model the weather/climate if you could measure the temperature of every cubic foot of air/water/land. The model “confidence” improves with the number of start point measurements you can input or the granularity of the data.

  • avatar
    kamiller42

    @James Horner

    The trade figures prove how reliant we are on China for low cost of goods. These goods are used by American businesses to keep costs low so they can compete in the Americas, Europe, Asia, and elsewhere. The “US-to-China” number does not operate in a vacuum.

    There maybe valid complaints about the import of Chinese goods and flooding, but is now, in these economic times, the time to address them? Are tires really the most critical issue?

  • avatar
    windswords

    PeteMoran:

    ‘@ NulloModo

    …. one would think that with computer modeling being where it is one could just input some criteria into a program ….

    Computer model? That wouldn’t work as you’d loose all those customers that deny climate models when it suits them.”

    What, you mean there’s politics in computer modeling tire selection too? Damn. We just can’t seem to keep politics out of anything anymore.

  • avatar
    highrpm

    Just a year ago, some company was importing Chinese tires that would shred apart. I can’t remember the name, but basically someone in the plant decided to save money by eliminating one of the layers inside the tire.

    The tires were DOT approved. The US importer went bankrupt because of this fiasco.

  • avatar
    Kristjan Ambroz

    Chinese tyres do tend to show very poor results when compared to European, Japanese, American or Korean competition. This is for Chinese brands, not necessarily for tyres of other brands manufactured in China.

    Every test carried out in Germany, or the UK I have seen puts them deeply into the not at all recommended territory.

    The US generally, is not a very good market for tyre manufacturers – the ratio of ultra cheap / budget / quality / premium tyres is decidedly skewed towards the wrong side (from a manufacturer’s perspective).

  • avatar
    Lumbergh21

    You could near perfectly model the weather/climate if you could measure the temperature of every cubic foot of air/water/land. The model “confidence” improves with the number of start point measurements you can input or the granularity of the data.

    Of course since you can’t even come close to doing that, models of global weather patterns have very low confidence. I do agree that the modeling of the handling characteristics of tires is anything but simple. In my limited experience of computer modeling for my engineering classes, reality, even at a scaled down level, doesn’t match reality in many instances.

  • avatar
    Lokkii

    Chinese tires—-

    Are they mostly sold for after-market use, or are there any OEM Chinese tire users out there…?

    I guess I’m asking – what will be the cost impact on the cost of a {for example) Chevy Aveo of increasing the price of Chinese tires?

    My napkin calculation goes something like this –

    Cost of Chinese tire now: $40
    Competitor’s tire is 30% more expensive: $52
    Tariff: 35% means change to competitor’s tires

    Cost to consumer $12 x 4 = $48

  • avatar
    HEATHROI

    Pete
    Jan ‘09 through June ‘09 cumulative:

    US-to-China: $35,662.6 million
    China-to-US: $159,130.8 million
    Difference: $-123,468.2 million

    Does any thinking person really think this kind of thing can go on forever without disastrous consequences?

    Yes. just as long as the guy buying stuff can pay his Chinese supplier.

  • avatar
    NulloModo

    My point about computer modelling earlier was just that R&D costs for a tiremaker should at this point be very low as there has been no fundamental shift in tire technology in decades. At this point all tire makers should know the best pattern for wet roads, snowy roads, dry pavement, or variations that allow for all three. All the tire company has to do is apply those designs they have likely had for decades to the raw materials and rake in the profit. I can’t imagine the raw materials to make a tire are anywhere near $100 thus my point that all tiremaker are gouging on price.

    I use Kumho Ecstas on my car as they were half the price of the OEM Dunlops. Performance overall has been good though they have worn faster than I would have liked, I am tracking for around 40000 miles on my current set.

  • avatar
    OldandSlow

    OMG – Is the flow of Chinese tires about to be cut-off? The answer is not. Our good friend the president of Delta Tire Co. will just pass on the cost to the consumer and as many as he always did.

  • avatar
    geeber

    PeteMoran: Off the top of my head; wear, temperature, pressure, material strength, distortion, pattern, friction, surface character, wet/dry and directional forces. Any I missed?

    For climate; energy input, reflection, absorption. It’s much more simple CFD (computational fluid dynamics) and standard physics. Easy stuff these days.

    You could near perfectly model the weather/climate if you could measure the temperature of every cubic foot of air/water/land.

    But it’s virtually impossible to do that, and even if you somehow did, the temperature could change within the next minute, while you can account for all of the variables in rating tires.

  • avatar
    Luke42

    vvk,

    I had a set of Chinese-made Nokian I3’s on a VW Jetta TDI for a while. They handled well, they were smooth, they were quiet, and they were low rolling resistance. The tire was nicely balanced for my purposes — I was doing a lot of highway driving at the time. (Autocrossers and sports car guys may not care about rolling resistance, but when you’re driving 600+ miles every other weekend to see your girl, sporty-car tires that last 30k miles just aren’t the right tool for the job.) So, Nokian I3s (or whatever they’re calling them now) are definitely on the list the next time we need tires for high-MPG highway car.

  • avatar
    benders

    I’ve got some Slovenian Goodyears on my car.

    I know a little about the manufacture of passenger tires. There’s a lot of labor involved not to mention a significant amount of material cost. At work, we estimate each pound of rubber costs us ~$1.50 and that’s for the unsophisticated compounds we use in tractor tires. The biggest challenge in tire design is preventing heat buildup in the radial belts.

  • avatar
    Kevin Kluttz

    I have a set of Kumho Solus HP4s and they have on the sidewall, “MADE IN CHINA”. Any questions? And they are all four egg-shaped and crowned. The Honda Accord drives completely differently after a rotation. I have to adjust to it every time I do it. NEVER a Kumho again, whether they make them at home or not. Terrible tires.

  • avatar
    PeteMoran

    @ geeber

    But it’s virtually impossible to do that…

    And it would be worthless to try. It’s called diminished returns. Model confidence improves rapidly to a point.

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