I don't guess anyone here remembers the tariffs placed on China's cheap imported tires back in 1999 by Buckwheat? yep 40-50%
Tariff pressure on Chinese truck tires grows
Feb 4, 20161,310 views76 Likes30 CommentsShare on LinkedInShare on FacebookShare on Twitter
In the evening (US time) of 29 January, the US International Trade Commission (ITC) formally announced its decision to investigate allegations of dumping of China-made truck tires and a separate allegation of unfair subsidies. These could result in anti-dumping duties and countervailing duties respectively.
Late last night in the US, the ITC posted a timetable and questionnaires. It is as bad as it could be for the Chinese, who are all heading away to be with their families for the Lunar New Year. The ITC wants completed questionnaires returned by 12 February (in the middle of the New Year holiday), ahead of a hearing in Washington on 19 Feb.
India too
A few days earlier, India's tire makers published a white paper alleging damage to their industry by increased imports of truck and bus tires from China. This was submitted to the Indian government ahead of its annual budget scheduled for 29 February.
Debates in Europe
Meanwhile, discussions are on-going in Europe about similar concerns over increasing numbers of truck tire imports. The key allegation is that these imports are changing the business model of truckers away from environmentally-friendly retreading, in favour of low-priced tires coming out of China which are focussed on single-use and poor retreadability.
Eurasian Economic Community declares dumping
In August 2015, the Eurasian Economic Area (Russia, Tartarstan, Beloruss and other countries) published the results of an investigation into dumping of China-made truck tires. This did not see much publicity in the West, but you can read the 181-page document (Russian language).
This permitted import tariffs of between 15% and 30% on China-made truck tires, depending on manufacturer.
The Gulf countries are also seeking to impose barriers against Chinese tire imports. Brazil has done the same. The list goes on.
Likely impact
Together these barriers are likely to have a significant impact on overall exports of tires from China. And since around 40% of all tires made there are exported, that will only make worse the current 'Winter' in China's tire industry.
My initial feeling was that the truck tire industry in China is much stronger than the car tire business, so the impact of the US tariffs is likely to be less severe than the car tire tariffs from the US.
At second glance, the likely US tariffs, in conjunction with those from the ECE area and probably India and maybe the Gulf region and possibly the EU will have a considerable impact.
When added to the damage caused by the US car tire tariffs, these prospective US tariffs on truck tires can only accelerate the restructuring of China's tire industry.
Two-tiers emerging in China
The industry there is separating into the companies who can manufacture off-shore, and those who will suffer.
Zhongce Group, Linglong, Sailun and Sentury have off-shore operations. Paradoxically, they will probably benefit from the sanctions.
DoubleStar is building in Kazakhstan; a group called O'Green is building in Indonesia.
Most of the others will suffer. I say 'most' of the others. Aeolus, Yellow Sea, Guilin Tires and Double Happiness are now aligned with Pirelli through the ChemChina group, so will be less affected, despite having no overseas tire factories.
The other joker in the pack is Triangle which claims to be financially profitable when almost all other tire makers in Shandong are suffering, and has announced its intention to build a factory in the United States. Triangle currently does not have manufacturing capacity outside China.
GiTi is the strongest of the tire makers in China and is in the process of building in South Carolina, and it works very closely with its sister company, Gajah Tunggal in Indonesia.
Those who can manufacture off-shore will be able to exploit the gap in the market created as successive governments impose import tariffs on the mass of tires coming into their countries from China.
Throwing light on the situation
I mentioned how India's ATMA has published a White Paper on Chinese truck tire imports.
That document is definitely worth reading, as it throws some light on the reason for China's success in markets around the world.
I have analysed it in some detail in my weekly update on China Tire Industry, but it paints a picture of a series of smaller tire makers in China developing relations directly with small importers in their target countries. Neither partner in this relationship is excessively considerate of laws, taxes or technical import requirements.
As small companies, they do not have the equipment to test for prohibited ingredients. Nor do they care too much that the tires do not carry specific accreditations – whether that be the mark of the Indian Standards Bureau, or CE-mark or a DOT code.
All they know is that they can make a profit by selling these tires at attractive prices.
This is the crux of the issue in every country affected by low-priced imports of tires from China.
Nations who suffer could try the expensive route of stronger enforcement, mass-inspections and costly testing.
Or they could slap tariffs on all Chinese tire imports.
Can all these countries be wrong?
Industries, workers and manufacturers around the world are telling their governments that this demonstrates unfair trade coming out of China. With such an outcry from so many countries, I think we have to conclude that this is unfair trade.
I have argued elsewhere that the Chinese business model of selling low-priced single-use tires is arriving in other markets and displacing the established business model of retreading.
I believe that is damaging to the environment. However, I came across a life-cycle analysis by Conti the other day. This claims that the increased rolling resistance on a retread consumes more energy over its lifetime than the energy saved by the retread process compared to new tire manufacture.
Having said that, some low-end truck tires from China have markedly higher rolling resistance than a premium carcass retreaded in a premium retread shop.
In Conclusion
In the end, there can only be one outcome. And it will be very painful for the Chinese tire makers. There was a survey this week in the Chinese press which indicated that over two-thirds of the China tire community believe there will be 'many' bankruptcies, closures and mergers in China's tire sector in 2016. Just 3% thought there would be only a few of these activities.
This is a summary version of a longer analysis of the situation due to be published this week in our weekly intelligence service about China's tire industry. Ask me about our China Tire Industry intelligence service, launching later this month.
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