On Sept. 11, 2009 a presidential proclamation was signed that imposed additional tariffs for three years on tires imported from China. This means that tire importers will have to pay a tax equal to 35% of the value of the tire, plus general duty rates of 3.4% to 4%. The additional duty will drop to 30% the second year and 25% the third year.

The tires subject to this duty are specifically described as new pneumatic rubber tires used on cars and on-the-highway light trucks, vans, and sport utility vehicles. The International Trade Commission’s investigation concluded that tire quantities imported from China were disrupting the U.S. market and recommended increasing tariffs. The Chinese were not found to be dumping the tires on the U.S. market at unfair prices, so an antidumping case was not initiated by the ITC. Instead, it used a provision for “relief from market disruption” under a law passed by Congress in 2000 allowing tariffs to be raised for trade protection.

The complaint against the Chinese tire producers did not come from domestic tire manufacturers but from the United Steelworkers Union, which represents 47% of U.S. tire making workers. The union claims that the surge in imports of tires from China has cost U.S. workers jobs in the tire industry. Indeed, four U.S. plants have closed since 2006 and three more are scheduled to close this year. There are 5,168 fewer tire workers in the tire industry today than there were in 2004. In this same time period China’s share of the U.S. market has risen from 4.7% to 16.7%.

So why did the U.S. tire industry not join in the complaint against the Chinese imports? The reason is that U.S. tire manufacturers have largely exited from lower end, or Tier 3, tire production. The strategy is to concentrate on the higher end Tier 1 and Tier 2 tires, which are more profitable. The Chinese, on the other hand, have increased their exports of the cheaper tires to fill the void left by the U.S. tire industry.

In many cases, these same U.S. tire producers have been importing the Tier 3 tires and selling them under their own brand. Cooper Tire opposed the actions taken by the ITC against the Chinese, saying that Tier 3 tire imports serve the value market that exists because many Americans cannot afford expensive brand name premium tires. They say they invested in China because they could not compete in cost with lower-end tires made in China. Goodyear has a plant in China but says its imports from China represent less than 2% of its tires sold in North America. It says it closed its Tyler, Texas, plant in 2006 to exit the private label business before the growth in Chinese imports had even begun.

China is not the only exporter of tires to the U.S. Tires and tubes from Canada and Japan account for 52% of imports, while Brazil and Mexico account for only 3% each of the U.S. market.

It is argued that restricting imports of a product from one country only leads to surges in other countries. In fact, U.S. Trade Representative Ron Kirk seemed to be encouraging a diversion of trade recently when he told Brazilians the China tariffs will mean that the U.S. will buy more tires from their country.

Critics of the protectionist measures against Chinese tire imports say that U.S. consumers will bear the costs of increased prices on low end tires due to the higher tariff. They say that downstream companies like tire importers, tire retailers, and auto manufacturers will also have higher costs, which may threaten jobs in those industries. Public safety may be jeopardized as lower income Americans may not be able to replace worn tires. They say the measures benefit mostly the manufacturers and employees represented by the United Steelworkers Union.

The supporters of the China Safeguard Statute maintain that the protective measures were needed to enable U.S. tire producers to regain profitability and create jobs, and would impose only minimal costs on consumers. They say the measure is intended to give plants time to upgrade and place themselves in a stronger position to compete once the tariffs are lifted. The benefits to the union and the domestic tire industry are said to be greater than any adverse effect on consumers and downstream users.