Analyst: Chinese tire tariffs a 'positive' for US tyre industry

ERJ staff report (TB)

Cleveland, Ohio - US tariffs on Chinese passenger and light truck tyre imports generally will be “a positive for the domestic tyre industry,” according to a top industry analyst.

“Today the landed cost of a Chinese tyre is 10-15 percent lower than an equivalent US-produced tyre, so the imposition of a 35-percent tariff will make Chinese tyres more expensive as selling prices for Chinese tyres will probably increase,” said Saul Ludwig of KeyBanc Capital Markets Inc. in his 13 Sept “Quick Alert” for investors. The US could well see short supplies and higher prices in tyres, even if imports from other low-cost countries increase, he said.

What is still unclear, however, is how the Chinese government will react to the tariffs, Mr. Ludwig said. It is possible it will grant an export tax credit on Chinese tyres to offset the tariffs, or else increase imports to Europe, he said.

Mr. Ludwig, an expert on both Goodyear and Cooper Tire & Rubber Co., said Goodyear-which imports less than 2 percent of its tyres from China-should be a big winner under the tariff scheme as it moves to utilise its North American capacity more effectively.

Cooper, which opposed the tariffs, is in a more ambiguous position, according to Mr. Ludwig. The tyre maker planned to import only 8 or 9 percent of its US supply from China, so its domestic plants should benefit in both volume and price.

However, Cooper has the problem of the plant in Kunshan, China, near Shanghai, in which it shares ownership with Taiwan's Kenda Rubber Industrial Co. Ltd. The $200 million passenger and light truck tyre plant was constructed as a joint venture between the two companies. (The two tyre makers ended their marketing and distribution arrangement with the Kenda brand in the US and Canada, effective 1 May, when Kenda resumed responsibility for sales and marketing, distribution and customer service for the brand.)

Mr. Ludwig said that plant was supposed to export all its output to the US.

Cooper can either divert the Cooper-Kenda production to Europe and elsewhere or continue to export them to the US and pay the tariff, Mr. Ludwig said. “Selling those tyres in China is not likely, as the plant was commissioned as a 100-percent export facility.”

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Analyst: Chinese tire tariffs a 'positive' for US tyre industry from Tire Business (a Crain publication)