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Editor's Notebook

Fixing a Hole: Total Tariff Fallout Still TBD, But Wrong Parties Were Wronged

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The dust still isn’t settled on the president’s ill-advis­ed smackdown of China-made consumer tires. There have been plenty of claims, counterclaims, predictions, wringing of hands and well-moistened crying towels, but few tangibles to date.

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Despite all of the Chicken Little-ing, the sky has yet to fall and we are no closer to having a handle on the real impact the new three-year punitive tariff will have.

As of this writing, here is what we do know:

• Numerous tire companies have already put up double-digit price hikes, generally in the 8%-12% range. Some are looking at other sourcing options.

• Chinese producers want export rebate concessions from their government to take the sting out of the tariff.

• Consumer groups claim that the American middle and lower class will suffer most because of the tariff.

• The Chinese are investigating if the U.S. is dumping chicken feet and car parts on their market, and filed a formal complaint with the World Trade Organization, which can effectively vacate the president’s decision.

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• After exhaustive reading and pondering, the USW’s Section 421 claims still don’t add up. [A PDF of the 400-page transcript of the June International Trade Commission hearing can be downloaded at tirereview.com.]

What we don’t know – and have already spent countless man-hours hashing over – is what the real fallout will be. I’m sure the upcoming SEMA Show will be awash in both rumor and, perhaps, real news.

Will those price increases – with or without adjustments by China’s government – keep those products “competitive” in the U.S.? Or will there be a wholesale shift to producers in India, Thailand, South Korea, Mexico or elsewhere?

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Will the top end of the market shift further upward, so as to maintain that delicate price-level balance between high-margin and low-margin products?

What will the collateral damage be? Will we lose some valuable players – here and in China – from the union’s unnecessary and benefit-less ploy?

We just don’t know.

I have been around this industry long enough to know that the end is never as predicted. Recall that mandatory TPMS was the end of the world as we knew it. Same with UTQG, tire registration and countless other crises that ended up being little more than mild inconveniences. May be the same here, don’t know.

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This one stinks, though. Stinks on rocks because this was so blatantly political and potentially devastating.

Some suspect that the president’s decision will be vacated or changed by either the WTO or by the president himself; he has six months to reconsider his decision. Either way, the union still gets its political tit-for-tat.

No right-headed person can look at the body of evidence, look at the prevailing market conditions since 2000, look at the moves made by the major domestic producers to systematically move away from the low end of the market and come to Obama’s conclusion.  

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No doubt Obama was between a rock and hard place. Side with the union and China is mad. Side with China and American labor is mad (a really bad thing for Democrats). So this had to come down somewhere in the middle.

It did, but a bit more left of center than necessary. Even a 10% tariff would have given the USW its “victory,” yet not materially damage an entire segment of the U.S. tire industry and endanger the livelihoods of tens of thousands of workers – far more jobs than the USW claims it lost and precisely one more than the USW stood to gain.

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In a devastated economy, where every tire sale is precious, that 35% increase leaves a lot of tire importers, distributors, wholesalers and retail dealers considering payroll levels. And their futures.

Not only have a lot of innocent U.S. businesses been dinged by the silly tariff, China’s tire industry has unjustly been painted as the evil-doer. They didn’t start this, we did.

As the majors willingly backed away from producing low-end broadline tires on these shores, Chinese tiremakers acted exactly like a U.S. company, just as any successful business does: See a hole, fill a hole.

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They didn’t create the situation. They didn’t tell Goodyear, Michelin, Bridgestone, Cooper and Continental to stop making low-margin radials here. They didn’t come in and price the big boys out of the market. We threw out the welcome mat and now we want to boot them out of the house.

And here’s the real kicker. Those tires didn’t just materialize. hey didn’t fall from the sky. There was an American on the other end of the phone working out a deal to bring those tires here. To fill that hole.

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Now a lot of people may find themselves in a big one.

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