Analysis: Impact of US duties on Chinese tire imports

Akron, Ohio – Those curious about the effects of elevated import duties on a market need look no further than the US replacement tire market over the past four years.

Since the US government imposed duties in 2015 — ranging up to 100% in some cases — on passenger and light truck tires from China, imports of passenger tires to the US from that nation have dropped more than 80%, to 8.5 million units last year from 50.4 million in 2014.

As a result, the share of the US passenger tire aftermarket taken by tires from China collapsed, falling to 3.9% last year from 24.4% in 2014.

The industry collectively is now looking at the potential impact of antidumping and countervailing duties imposed in February on truck and bus tires from China.

The duties, which range from 20.98% to 63.34% countervailing and 9% to 22.57% antidumping, took effect in mid-February.

The truck/bus tire duties are the result of a petition filed in April 2017 by the United Steelworkers (USW) union, which represents workers at unionised tire factories in the US.

The US International Trade Commission (ITC) voted in February 2017 not to impose duties, which prompted a USW appeal with the Court of International Trade.

The court remanded the decision to the ITC, which decided two months ago in favour of duties after re-evaluating the case.

At this point, it is still too early to gauge the full impact of the ITC's ruling on the market and importers of truck/bus tires from China.

However, there have been a few moves lately that indicate the commercial tire segment may mimic changes that took place in the passenger tire market.

Other recent actions by the Trump administration on tariffs on Chinese goods are compounding problems facing importers and add a wild card into the task of forecasting market changes.

In fact, the imposition of a general 10% tariff in September 2018 on $200 billion (€180 billion) worth of goods from China and the threat of hiking this to 25% at year-end resulted in a spike in imports of truck/bus tires last year from China to a record 9.2 million units.

The 42% increase in shipments was inflated by perhaps 3 million units (or more) by importers' placing extra orders toward year-end to get product on-shore prior to the threatened year-end bump to 25%, multiple sources said.

While the administration eventually postponed those tariffs the importers' moves proved providential when Commerce handed down in February its decision to impose countervailing and antidumping duty orders on truck and bus tires from China, sources said.

The surplus inventory of these "tariff-beater" imports on hand could serve to fill the gap, at least temporarily, for any shortfalls in new imports, sources indicated.

At this point it's still speculation as to how much the duties — ranging from 20.98 to 63.34% countervailing and 9 to 22.57% antidumping — will affect imports from China, but the track record for passenger tire imports could be a blueprint.

Since the import duties took effect, there have been a few disclosures of price increases in response.

Among these was Bridgestone Americas Tire Operations raising prices 20% on 5 March on all Dayton-brand truck and bus radial tires sold in the US.

Toyo Tire USA Corp. also raised dealer base prices 1 May on its commercial tire range by an average of 5%, with the exception of the Toyo M320 on-/off-road tire.

Cooper Tire & Rubber Co., which sources all of its Cooper- and Roadmaster-brand truck tires from China, raised prices by an undisclosed amount at the start of the second quarter to compensate for the elevated import duties.

Cooper noted in its first quarter financial results it had incurred $10 million in costs related to the import duties, which amount to slightly more than 42% on Cooper products, Cooper President Brad Hughes said.

Cooper estimates the elevated import duties will result in $50 million in costs for the full year. Mr. Hughes said management expects there will be additional incremental prices increases this year but doesn't expect they will be sufficient to offset the full impact of the duty-related costs.

Despite the import duties and additional costs, Mr. Hughes stressed in comments to financial analysts during a conference call that Cooper is committed to continued growth of its TBR business, with both the Cooper and Roadmaster-brand product lines.

In addition, Prinx Chengshan Tire Co. Ltd. — a former Cooper Tire joint venture — has put on hold plans to launch a truck tire brand in North America, citing the impact of the import duties and the potential to source tires from a plant being built in Chonburi, Thailand. The plant has a nameplate capacity of 4 million passenger and 800,000 truck/bus radials.

At the same time, though, the import "shockwave" of 2015 — along with increased scrutiny of imports by governments in Europe and elsewhere — prompted several major Chinese tire makers to consider building capacities outside of China.

In the past five years at least eight major Chinese companies have built or are in the process of building tire plants outside of China, predominantly in Thailand but also in Vietnam:

Double Coin Holdings Ltd. built a plant for truck and OTR tires in Rayong Province, Thailand, that went on stream in mid-2017 with rated annual capacities of 2.5 million radial truck tires and 50,000-plus OTR tires. Shipments to US customers began in April 2018.

Guizhou Tyre Co. Ltd. is building a truck/bus tire plant near Ho Chi Minh City, Vietnam. It is rated at 1.2 million units a year, with additional capacity foreseen in Phase II and III expansions.

Jiangsu General Science Technology Co. Ltd. announced plans in late 2018 for a passenger and truck/bus tire plant Rayong Province, with capacities of 6 million passenger tires and 1 million truck/bus tires annually.

Qingdao Sentury Tire Co Ltd. opened a plant in Rayong Province in 2015 rated initially at 5 million car/LT tires annually before expanding to 12 million tires in Phase II.

Sailun Jinyu Group Co. Ltd. opened a plant in Tay Ninh Province, Vietnam, in November 2014, for radial car, truck and OTR tires (rated capacity of 12 million units a year )and is building a second factory there for radial truck and OTR tires rated at 1.2 million truck/bus tires and 30,000 metric tons of OTR tires annually.

Shandong Linglong Tire Co. Ltd. opened a car/light truck tire in Chonburi, Thailand, in 2014 and added radial truck tires to the mix a year later. The plant is rated at 1.2 million truck/bus tires and 12 million car/LT tires a year.

Zhongce Rubber Group Co. Ltd. opened a plant in mid-2015 in Rayong Province, for passenger/light truck tires and added radial truck/bus tire capacity there a year later. The plant is rated at 5 million car tires and 700,000 truck/bus radials a year.

In addition, Cooper has agreed to work with Sailun Jinyu Group to build a radial truck/bus tire plant near Ho Chi Minh City, Vietnam, rated at more than 2 million units annually.

The venture will extend Cooper's relationship with Sailun Jinyu, which already involves an offtake production agreement covering production of Cooper's Roadmaster-brand truck/bus tires at the company's existing Vietnam plant and Sailun Jinyu's pending purchase of a 35% stake in Cooper's Qingdao Ge Rui Da Rubber Co. Ltd. (GRT) joint venture in Qingdao, China.

US import statistics from the past several years show the shift away from China markedly.

Passenger tire imports from Thailand, for example, have tripled in the past four years, rising to 33.8 million units last year from 11.2 million in 2015. Likewise, light truck tire imports from Thailand have doubled to 6.64 million units in 2018 versus 3.03 million in 2015.

Truck/bus tire imports have risen as well, but not quite as dramatically — up 40% to 2.45 million units last year. The 2019 data very likely will show a marked change.

At the same time, Vietnam has emerged as viable player in the global tire sourcing game, shipping 8.5 million passenger tires to the US last year, nearly double the volume in 2015.