Modern Tire Dealer

APR 2017

Magazine for the professional tire industry

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Page 9 of 77

MTD April 2017 News/views Why there are no tariffs on Chinese truck tires Trade commission finds 'pervasive' underselling It all came down to supply and demand. At least those were among the most significant factors the International Trade Commission (ITC) weighed when deciding whether imported truck and bus tires from China should be subject to tariffs. In the end, commissioners voted 3-2 not to impose tariffs. And in the 200-plus page report where both sides outlined their findings, supply and demand was at the center of it all. Commissioners considered both aftermarket and original equipment sales, though the growth in the aftermarket was a huge consideration. Between 2013 and 2015, the data submitted to the ITC points to volume growth of nearly 25% in the after- market. In that same period, the domestic industry's presence in the aftermarket grew only 1.4%. Here's a look at some of the factors considered. Supply: The domestic industry held the larg- est share of the U.S. market during the period of investigation, but its share steadily declined from 53.3% in 2013, to 48% in 2014, to 45.6% in 2015. In 2015 the four largest domestic producers of truck and bus tires were Bridgestone Americas Inc., Goodyear Tire & Rubber Co., Continental Tire the Americas LLC and Michelin North America Inc. Chinese tires were the second largest source of supply for the U.S. market during the same period. Market share for Chinese tires grew from 28.7% in 2013 to 33.2% and 33.6% the next two years. Imports from countries other than China grew from 18% market share in 2013 to 18.7% in 2014 and 20.8% in 2015. Canada, Japan and Thailand were the leading sources of imported tires from this group. Demand: Using data from questionnaires in the investigation, as well as U.S. import statistics, the commission determined U.S. consumption of truck and bus tires increased from 21.9 million tires in 2013, to 25.3 million tires in 2014, to 26.5 million tires in 2015 — an increase of 21%. The increase of imported truck and bus tires from China during that same time frame was 41.9%, from 6.3 million tires in 2013 to 8.9 million tires in 2015. Commissioners who voted to impose tariffs said that increase allowed imported products from China "to take market share directly from domestic produc- ers." Domestic market share fell 7.7%, while the Chinese market share grew 4.9%. Demand for OE tires is driven by heavy truck sales, which increased between 2013 and 2015. Demand for aftermarket tires is compelled by truck tonnage, which "increased steadily." Sales of both domestic- made tires and imports from countries outside of China "were made predominantly in the aftermarket." U.S. producers reported an increase in demand, while importers said it was a mix of either increased or fluctuating demand. "U.S. purchasers were evenly divided between no change and decreased demand, and no purchasers reported either demand increases or fluctuations." There's one supply-and-demand assertion the dissenting commissioners didn't buy — that imported truck and bus tires from China were filling a demand the domestic tire market couldn't meet. The commis- sioners said the U.S. industry had capacity avail- able, and maintained higher inventory levels during the period. Also, only two of 14 questioned purchasers said they started buying imported products because of availability. Price was a much more common influence. Pricing: Both sides agreed on two facts. Chinese tires undersold domestic truck and bus tires between 2013 and 2015, and raw material prices dropped during the same period. Commissioners called the underselling "pervasive." Chinese tires undersold domestic ones in 79 of 85 comparisons, in both OE and the aftermarket. But the majority of commissioners determined the underselling didn't prevent the domestic industry from increasing shipments or prices. The two com- missioners who voted in favor of tariffs pointed out the underselling averaged 38.5% between 2013 and 2015. "We find that the significant volume of subject imports, at prices that undersold the domestic like product and depressed domestic prices, adversely impacted the domestic industry." Purchasing: The commission found there is some degree of substitutability between the domestic and imported products, and certain factors play into a purchasing decision. Purchasers cited quality, price and availability as their key considerations. A majority of purchasers (11 out of 20 surveyed) indicated they only sometimes purchase the lowest priced product. Here's one disconnect: 34 of 39 importers, and 13 of 20 purchasers said branding influences the price customers are willing to pay for truck and bus tires. Only two of six producers indicated the same thing. — Joy Kopcha Chinese tires undersold domestic ones in 79 of 85 comparisons. 8

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