When the People’s Republic of China (PRC) entered the tire business many years ago, most of the domestic manufacturers were not threatened. Tire quality was questionable at best, so the major tire companies were fine with giving them the market that was focused on the lowest price. On the truck tire side, the threat was even less because fleet demands were exponentially higher than consumer expectations when it comes to performance and cost per mile.
The United Steelworkers (USW) union represents 6,000 workers at five manufacturing facilities that it claims accounts for more than two-thirds of the domestic truck and bus capacity. According to the USW, imports from the PRC grew from 6.3 million in 2012 to 8.4 million in 2014.
Not surprisingly, the USW filed an antidumping and countervailing duty petition earlier this year with the U.S. Dept. of Commerce (DOC) and the International Trade Commission (ITC). The USW “believes that imports of truck and bus tires from China are being sold for less than their fair value, are benefitting from countervailable subsidies, and are causing material injury, or threatening material injury, to the domestic industry producing truck and bus tires.”
On July 5, DOC issued a preliminary determination that subsidies are being provided to manufacturers from the PRC. In other words, an “authority” is making financial contributions in order to create competitive advantages in the marketplace. The countervailing duty (CVD) investigation determined that Double Coin Holdings Ltd. has a preliminary subsidy rate of 17.06%, Guizhou Tyre has a preliminary subsidy rate of 23.38%, and all other truck and bus tire manufacturers from the PRC have a preliminary subsidy of 20.22%. As a result, the U.S. Customs and Border Protection will start collecting cash deposits on every truck and bus tire from the PRC in those amounts until the final determination is issued later this year.
Making matters potentially worse for the PRC manufacturers is the fact that DOC and ITC are also pursuing antidumping duties (AD), which could result in even higher tariffs. The basic difference between a CVD and an AD is the CVD represents a subsidy that creates an unfair advantage, while the AD is focused on subsidies that allow products to be sold at prices that are significantly lower than production costs.
Given the past history on tariffs applied to tires imported from China, the truck and bus tire market should prepare for the fallout. When the domestic passenger and light truck tire industry was the beneficiary of a CVD on imports from the PRC, imports fell 7.5% in the first year, 27.9% in the second, and 12.9% in the third. When the CVD expired, imports shot back up with a 25% gain in the first year, a 57.8% gain in the second, and 17.9% in the third. When the CVD was reinstated, imports fell by 50% in the first year.
It’s all in the hands of DOC right now. The current deadline for a final determination on a CVD is Nov. 9, but that could be extended. If DOC affirms that imported truck and bus tires from China are causing material injury or threatening material injury to the domestic tire industry, then a CVD order will be issued followed by a final determination on the AD by Dec. 24.
If both DOC and ITC determine that subsidies are creating an unfair advantage in the marketplace, then tariffs on all truck and bus tires imported from China will be applied at some point next year. But right now, the only thing the industry can do is wait for the other shoe to drop in order to see where it lands.
