Make tariffs great again

The tyre industry has seen its fair share of import tariffs in recent years. The largest scale of these, across the widest range of products, was initiated by the US against Chinese produced car tyres in 2009. That president has been and gone since then (as have further tariffs on car tyres and OTR tyres), but still tariffs are making a huge impact on the tyre industry in the USA and beyond.

More specifically on tyre tariffs later, but first we can’t help but notice just how fond of tariffs United States President Donald Trump is. On 24 July President Trump, tweeted: “Tariffs are the greatest! Either a country which has treated the United States unfairly on trade negotiates a fair deal, or it gets hit with tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be great!” Clearly President Trump is an enthusiastic advocate of the negotiation leverage that tariffs offer, but there is no consensus that it really is “as simple as that.”

At the end of June, we learnt that two US-based steel tyre cord manufacturers had warned that they may have to shut their factories as a direct consequence of Trump’s tariff policy. The problem for them is that US steel production is far lower than its demand, meaning if China was dumping steel in the US (which the tariffs are supposed to protect against), the People’s Republic would be doing the Land of the Free a favour. Therefore, tariffs only serve to raise steel prices for those buying it in from China. And in this case that is a cost that the US tyre cord factories cannot afford to pay.

As much as he likes tariffs, the bulk of Trump’s war of protectionist words appears to be directed at China. But what about Europe? According to a recent report conducted by Morgan Stanley analysts, “tariff measures put in place to date are likely to lead to only a minimal drag on euro area Gross Domestic Product (GDP) growth”. However, they add, “while the magnitude of the immediate impact on output should be minimal, a higher degree of business uncertainty and an extension of tariffs to other sectors could alter the macro outlook.” In other words, it’s the possibility of large tariffs on things like cars that could have a bigger effect on the economic trajectory.

The seemingly throwaway detail “things like cars” is just as important for the tyre industry. Of course the bulk of such a blow to Europe would be borne by Germany due to the large number of Original Equipment Manufacturers (OEMS) and large, medium and small automotive suppliers in the country. However, Germany is not the only car producing and exporting market. And neither is it the only tyre supplying source. Let’s not even get started on the combined complexity and uncertainty of Brexit. Nevertheless, the analysts surmise: “taking into account domestic and global supply chain spillover effects” an intermediate level of tariff escalation would [only] lead to an extra GDP decline of 0.2 percentage points as a kind of economic ripple effect of what goes on between the US and China. “We think that the European Central Bank (ECB) would turn more dovish,” the analysts concluded, adding: “it won’t likely act.” Instead, ‘Passive’ fiscal tools, such as unemployment benefits and automatic stabilisers” are expected to be used as a way of cushioning some of the negative impact.

Economic prognostications and the ongoing US-China trade/tariff war aside, recent days and weeks have brought with them more news relating to our own European anti-Chinese truck tyre tariffs. These come in two flavours: anti-dumping tariffs and anti-subsidy tariffs. The short story is that the European anti-Chinese truck tyre anti-dumping tariffs are down, but not out. Meanwhile, the European Commission (EC) has decided against implementing anti-subsidy tariffs (also known as countervailing duties) at this time. That’s the overview, but there is clearly far more to it than that. Indeed, the commission’s own literature highlights the fact that tariffs are already having a positive impact on the European retreading industry. Therefore, the tariffs must also be having other outcomes across the continent (see our August magazine’s Company News section for more detailed analysis and the latest details relating to European import tariffs).

Elsewhere in he upcoming issue of Tyres & Accessories you can find detailed features on the winter and all-season tyre markets, which reports, amongst many other things, on how all-season tyre sales now outnumber winter tyres in the UK replacement market by a ratio of 4:1. And what’s more, the trend is continuing upwards in favour of all-season tyres. And finally, as well as all the regular sections, this month’s magazine also includes details of the latest news from the world of batteries. No import tariffs on these products at least!