US Tariffs – Are They Paying Off?
The Alliance for American Manufacturing (AAM) represents a number of manufacturers and the United Steelworks union and holds the aim of strengthening manufacturing in the US, so it is no surprise the organisation views the Obama administration’s tariffs on consumer tyres from China as nothing less than a glowing success. On September 1 the AAM released a document, titled “Obama’s Bold Economic Move on Chinese Tire Imports is Paying Off”, in which it outlines the market’s reactions to the tariffs. The organisation puts forward a strong argument for their continuation – but are the tariffs really achieving their desired effect, or are they taking credit for other factors influencing the market?
“Looking at the first six months after imposition of relief (October 2009-March 2010) versus the same six months in 2008-09, domestic production was reportedly up over 15 per cent, or more than 10 million tyres based on Rubber Manufacturing Association data. Apparent consumption is also up,” the AAM states. “There can be no doubt that the relief authorised by the President has resulted in the reversal in the massive decline in domestic production. This is clearly reflected in press accounts and what the USW has seen at various domestic plants.”
According to the AAM statement, the USW observed “sharp increases” in Goodyear domestic sales of applicable products, such as the Kelly brand. It backs up this assertion with information from Goodyear conference calls for the fourth quarter of 2009 and the first two quarters of 2010; these show the decline in sales to have stopped in the fourth quarter, with 16.9 million unit sales in the three-month period matching those a year earlier. Sales then increased 9.2 per cent in the first quarter of 2010 and 13.1 per cent in the second quarter. The AAM also notes that Cooper Tires’ net sales in North America in the second quarter of 2010 increased 35 per cent (in dollars) year-on-year.
Although this trend was also observed in Europe where no equivalent tariff exists, the AAM says this increase “is due to end use customers choosing a domestic brand over imported tyres because 421 enforcement has caused the price discrepancy between American and Chinese produced tyres to shrink and the disruption to the pricing in the market has abated.”
The AAM also declares that US rubber workers have benefitted in hours worked and increased hiring since the tariffs took effect. “According to local USW sources, Goodyear plants producing 421 subject tyres have hired 130 new hires in 2010 and are working an average of 20 per cent overtime,” states the AAM report. “Additionally, Michelin plants also manufacturing subject tyres under the brands BF Goodrich and Uniroyal are working 7 days a week at around 15 per cent overtime and have brought on 115 new production workers since the beginning of 2010. The story is the same at Cooper Tire & Rubber in Findlay, Ohio where 100 new hourly employees have been hired as well as additional salaried workers. Since the relief went into effect the operation has returned to a 7-day work schedule and mould utilisations have increased significantly driving an estimated 20 per cent production increase at the facility.” While the AAM admits that some of this increase in utilisation is “due to consolidation of some operations”, it adds these plant closures were planned before the tariffs came into force.
Yet the statistics included in the AAM report show tyre imports to be as strong as ever, even though Chinese products are clearly less attractive. “Imports from China which had been surging in the 2004-2008 period and were ranging from 10.7 – 12.2 million tyres in each quarter of 2008 declined 34.2 per cent in the first six months after relief was provided and are ranging from 6.4 – 7.6 million tyres for the three quarters since relief,” reports the AAM. Despite a sharp drop in sales of consumer tyres from China, the organisation points out that total consumer tyre imports (including those from China) increased 3.3 per cent or 1.9 million tyres in the first six months following the implementation of tariffs, while tyre imports excluding those from China increased by 8.9 million units.