Study pegs tyre tariff impact at $1 billion

ERJ staff report (TB)

By Bruce Davis, Tire Business staff

Washington, D.C. - A nonpartisan research institution suggests in a new study the imposition of elevated tariffs on imports of consumer tyres from China in 2009 increased the cost of tyres for American consumers by more than $1 billion a year since.

The authors of the study-“U.S. Tire Tariffs: Saving Few Jobs at High Cost”-Gary Clyde Hufbauer and Sean Lowry of Peter G. Peterson Institute for International Economics, base their conclusions principally on the differences in the average value of imported car and light truck tyres before September 2009 and after.

The authors also conclude that the tariffs may have resulted in the retention of about 1200 tyre industry jobs in the US that otherwise may have been eliminated-an accomplishment touted by President Obama in his 2011 State of the Union address-but at a cost of at least $900 000 per job if extrapolated against the calculated added consumer cost.

The United Steelworkers union (USW), which was instrumental in getting the US to impose the elevated tariffs tyres three years ago, is taking issue with the study, saying the authors failed:

# To look at the full economic impact of how the tariffs affected the US tyre industry;

# To consider the full impact of rising raw materials costs on tyre prices;

# To take into account consumers' increasing appetite for larger, higher valued tyres;

# To take into account hundreds of millions of dollars in investment in US tyre manufacturing announced since early 2010; and

# To consider the “secondary” employment created by each manufacturing job saved or created.

Hufbauer and Lowry used available government data to calculate the change in declared customs values for tyres from China vs. those from other countries to derive their cost estimates. In deriving their estimates, though, the authors apply their cost differential calculation to all imports, not just those from other lower-cost nations, even though they conclude that the “big winners” of the situation were “alternative foreign exporters, primarily located in Asia and Mexico, selling low-end tyres” to the US.

They also attempted to quantify the increase in costs for US-produced tyres, using Producer Price Index data for tyres from before September 2009 and after. They conclude the annualised value of US-made tyres increased $590 million after the tariffs were imposed, and they attributed half of the increase to the tariffs and half to other reasons such as raw materials costs.

Comparing the authors' calculations with the US tyre aftermarket yields an increase of about $4.80 per tyre sold in 2010, when passenger and light truck tyre shipments together were 229.1 million units.

The authors don't take into account the $850 million or more in duties collected by the US government since September 2009, but they do contend that the added costs imposed on US consumers cost the American economy more than 2500 jobs in various retail sectors because consumers' discretionary spending was reduced by the higher prices they paid for tyres.

“Only a very small fraction of this bloated figure reached the pockets of tyre workers,” the authors said. “Instead, most of the money landed in the coffers of tyre companies, mainly abroad but also at home.”

In their conclusion, the authors said, “Creating jobs in the American manufacturing sector and ensuring that China plays fair on the international market are both worthy policy goals. Trade protection targeted at selected imports, however, is a costly way of going about these tasks.”

The Peterson Institute describes itself as a “private, nonprofit, nonpartisan” research institution devoted to the study of international economic policy.

The institute has provided since 1981 what it calls “timely and objective analysis” of a wide range of international economic problems.

The USW also calls into question Hufbauer's credentials on studies such as these because of what it calls his “previous misreadings of international trade policy,” such as a study in 1993 on the effects of the North American Free Trade Agreement (NAFTA).

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Article from Tire Business, a Crain publication