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US distributors deny Chinese tires disrupted market

REPRESENTATIVES of American tire distributors told officials from the Office of US Trade Representative (USTR) at a hearing yesterday that Chinese made tires do not compete directly against US made products in the North American market.

They further pointed out an increase on trade tariff against low-cost Chinese tires will cause more job losses in the US and additional outlay for American consumers.

Contending against a recommendation made by the International Trade Commission (ITC) on June 29 to impose import duties on Chinese tires by as much as 55 percent, Jim Mayfield, President of Del-Nat Tire Corp. which represents small and independent tire distributors in the US, told the government panel that American tire makers are not making "entry level tires," the subject of the trade dispute.

"They tell me 'we got out of that business and we are not going back'," Mayfield said.

Mayfield said for the past 15 years, major US producers had focused on higher profit and better performing tires instead of what industry insiders call "tier three tires" that serve lower end and second-hand automobiles.

He said that led distributors like him to look for foreign suppliers in order to cater the niche market at the bottom of the pyramid, separated from the higher end market that US manufacturers are after.

The ITC proposal to activate a three-year duty hike against Chinese made "tier three tires" is the result of a petition brought by the US Steelworkers Union (USW) which represents workers at large US tire manufacturers.

USW's petition was based on Section 421 of US Trade Act of 1974, which allows the US government to take punitive action if imports of a product from China are determined to "cause or threaten to cause market disruption to the domestic producers."

Representatives from USW argued at yesterday's hearing that "a flood" of Chinese import from 2004 to 2008, an increase of 215 percent by volume, caused 5,100 US job losses as tire plants closed down.

But Mary Xu, deputy secretary general of the China Rubber Industry Association, told the panel that increase in Chinese tires import to the US is modest.

It grew 2 percent in 2008 over volume from 2007. The general trend in 2009 was declining before the threat of a 55 percent hike in tariff triggered a recent surge.

US tire distributors estimate Chinese tires occupy roughly 15 percent of the US market.

Members from the government panel that includes officials from the USTR, the State Department and the Labor Department, said an important point in deciding the up-or-down vote on the ITC recommendation is the impact of possible job losses caused by the decision.

Thomas Prusa, professor of economics at Rutgers University, testified if high tariff made import of Chinese tires non-profitable, thus unattractive to US distributors, for every job saved or recreated at a US tire factory, a dozen to 25 jobs in the distribution sector could be lost due to the elimination of the import business and the decline in sales and tire installation jobs caused by higher cost of tires.

Prusa believes the ITC ruling narrowly focused on job losses in the US tire industry, but lacks consideration of an overall impact to the US economy.

Furthermore, he estimates US consumers would have to pay 600 million to 700 million dollars extra per year for the more expensive US made tires if American manufacturers decided to return to that market.

No major American tire makers or auto makers, the tire industry's biggest client, supports the ITC decision.

The USTR must submit a policy recommendation to the White House by September 2 on whether or not to impose the tariff. US President Barak Obama has 15 days after that to give a final ruling.

This decision, Mr. Obama's first on a US-China trade dispute, comes one week before he hosts Chinese President Hu Jintao in Pittsburg for the G-20 meeting in September.


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