The U.S. Must Act Only After Careful Consideration when Applying Sanctions on Chinese Tire Imports

Involving the value of 2,200,000,000 U.S. dollars in exports, the Sino-U.S. tire protectionism case has continued to be reviewed in the past few days. According to the request from the U.S. United Steel Workers, the U.S. International Trade Committee adopted Chinese tire protectionist measures on June 29th, proposed to impose a 3-year special tariff on China-made tires for passenger cars, light goods vehicles, and the 1st year to the 3rd year extra tariffs are 55 percent, 45 percent and 35 percent respectively.

If the U.S. government accepts this plan to implement sanctions on Chinese tires, this will certainly result in double losses. Regarding China, six A-share companies’ performance in the second half of the year will be affected in varying degrees. Import tariffs in effect are approximately 3.4-4.0 percent, increasing from 35 percent to 55 percent. The Chinese tire businesses’ export loss will reach approximately 1,100,000,000 U.S. dollars, while at the same time, this will affect the domestic tire industry and the survival and development of the related upstream and downstream industries, threatening approximately 100,000 workers’ employment.

Speaking of the U.S., tire manufacturing and car manufacturing, as well as consumers, have all become the victims. First, American car manufacturing costs will rise. According to the Ford and the General Motors companies’ surveys, if this proposal to raise Chinese tire imports punitive tariffs is accepted one day, the manufacturing cost of every new car and truck that leaves the factory will increase by 150 U.S. dollars. This increase in cost will either weaken the competitiveness of the American automobile market, or increase the American consumer’s burden. The U.S. car manufacturing company has no option but to bear the extra manufacturing costs brought from the imposed high tariffs. As a result of the raise in tire prices, U.S. citizens will have to consider re-selecting tire products or even postpone replacing tires, thereby causing potential safety hazards, which is a cause for worry. For whatever reason, the two largest U.S. car manufacturing industry giants – General Motors and Ford – are actively supporting President Obama’s veto of this proposition.

Second, regarding China’s tire exports to the U.S., there are considerable shares of products made by American tire manufacturers in Chinese factories or OEM products that are later transported to the U.S. Moreover, in the Chinese domestic tire market, the majority are comprised of American manufacturing companies. The U.S. response to increased tariffs on Chinese tire imports is no different than harming the benefits of American manufacturing. That is the reason why the U.S. Tire Industry Association, which is composed of more than 6,000 small businesses throughout the 50 U.S. states; the American Tire Free Trade Alliance, which is composed of 6 American tire importers; and the U.S. Retail Leader Association, on behalf of the U.S.’s biggest retail merchants and product manufacturers and service suppliers, all publicly oppose the Chinese tire protectionist measures and expect President Obama to veto this proposition in September.

Third, the U.S. sanctions on the Chinese tire industry not only cannot increase employment, but actually will cause more unemployment. On the one hand, this is because Chinese tire exports are low-end products which do not pose a threat to the high-end products produced in the U.S. To use an increase in tariffs to limit Chinese products will make it impossible to bring about a substantial increase in American tire production and sales, and therefore also cannot increase employment. On the other hand, an increase in tariffs will cause a major decrease in Chinese tire exports to the U.S. Chinese companies will abandon the American market. This will certainly lead to the layoff of 100,000 Americans who sell Chinese tires on commission. Professor Thomas Boucher of Rutgers University in America recently pointed out that if the U.S. tire industry gets help from special protectionist sanctions that will save one employment post, it will result in a loss of 25 employment posts, totaling a U.S. loss of 25,000 jobs. Without a doubt, this would result in one misfortune after another for the U.S. employment market.

The unemployment of U.S. tire workers stems from the economic recession in the U.S. and the decline of the automobile industry. For these past few years, the market share of the three big U.S. car companies has shrunk substantially, production and sales have substantially dropped and tire production and sales have had corresponding reductions, resulting in company closures and a large numbers of layoffs and unemployment. With a decrease in market shares, the U.S. does not hold hope on the economic recovery, have not tried to solve problems by subdividing the market, reducing the cost, and increasing competitive power, but have actually gone the wrong way by relying on trade protection, raising the threshold of imports. Is this too shortsighted?!

The imposing of special tariffs on Chinese products by the U.S. is not only a lose-lose situation, it is even contrary to the fair trade principle of the WTO, by encouraging international trade protectionism which causes destruction of the world trade order. The world trade order needs cooperative protection of all participants. The U.S. must act only after careful consideration when applying sanctions on Chinese tires!