Where rubber hits the roadblock

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By Roy Littlefield

The importation of tires made in China -- and whether stiff tariffs should be imposed on them -- is emerging as a major test case for President Obama as he seeks to balance the competing needs of Americans with those of a trade union.

In a matter of weeks, the president is due to rule on whether to approve the tariffs recommended by the U.S. International Trade Commission at the behest of the United Steelworkers Union. The union has asserted that limiting Chinese tire imports will save American tire manufacturing jobs.

But the ITC's recommendation -- a whopping 55 percent tariff in the first year of enactment -- is not a "job saver." It is a protectionist measure that protects nothing.

Chinese tires imported into the United States are overwhelmingly geared to the lower-cost tire market. These are lower-cost tires aimed at the needs of those American consumers who require safe and reliable tires but who don't want to break the bank. U.S. tire manufacturers are not competitors in this market segment. They simply don't make these tires, instead focusing on designing and manufacturing more expensive and higher-profit tires.

In short, shutting out tires imported from China is not protecting American manufacturers of lower-cost tires, because there aren't any. Moreover, no U.S.-based tire manufacturer joined the union in the quest for protectionist measures on tires. Indeed, American tire manufacturers would speak up if they felt China threatened their market share.

So, what would such a sweeping tariff actually accomplish if it wouldn't protect American manufacturing jobs in the value-tire segment because they don't exist? There are two dominant schools of thought.

The first says that a tariff on Chinese tires would force job losses elsewhere in the industry. At the local level, layoffs at the neighborhood automotive repair centers and mom-and-pop tire shops are a likely result if the president imposes the suggested remedy.

A study by economics professor Thomas J. Prusa of Rutgers University found that American workers in the tire distribution and installation sectors "have every reason to be concerned about their future. The punitive tariff on Chinese tires would lead to a loss of at least 25,000 U.S. jobs.

"Tire distributors, installers, service stations and other businesses in related downstream industries have predicted that the recommended tariff would force some of them out of business and result in the laying off of workers in an economy that can ill-afford more job losses," the report says.

Why the job losses? For many in the tire distribution and installation business, lower-cost tires made in China form the bulk of their trade. Take away their inventory before replacements can be found, and jobs will evaporate. As a result, some tire distributors and installers will end up laying off workers. For others, the punitive tariff will result in the shut-down of the firm or facility.

The second school of thought says that far from jump-starting American-made lower-cost tire production, the tariffs would spur tire distributors to replace Chinese lower-cost tire inventory with similar tires made elsewhere in the world. Why? Because American tire makers have no intention of making lower-cost tires. They made the corporate decisions long ago to focus on higher-profit tires. Therefore, the real winners will be tire manufacturers in Mexico, Brazil and Indonesia.

The biggest loser, in addition to American-based tire installers and distribution centers, would be the American consumer, because a tariff is a tax, pure and simple. According to Modern Tire Dealer, the tariff would add $20 to the cost of a single tire. And, the hefty tax would result in a road safety concern: consumers not replacing their worn tires.

For tire consumers who can barely afford to replace a worn tire, an increase of 20 percent or more on the cheapest tire available -- regardless of sourcing -- would be dramatic. This would increase the risk that some consumers will not replace worn tires when they should. It is an invitation to have more tire-related accidents on our roads.

The administration does not have to accept the ITC's recommendation. Mr. Obama has until September to render his own verdict -- and he can rule against the ITC if he believes the remedy would cause more economic harm than good. The answer is clear that nothing good can come from the tariffs.

Mr. Obama has spoken eloquently about the need to shun protectionist measures. Speaking about the climate-change bill and a provision that would impose trade penalties on other countries, he said: "At a time when the economy worldwide is still deep in recession, and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there."

We hope Mr. Obama heeds his own advice when it comes to tires.

Roy Littlefield is the executive vice president of the Tire Industry Association, an international organization representing all elements of the tire industry.