Obama Kicks China's Tires
PITTSBURGH (
) -- A tire tariff could spur a trade war with China, but a leading labor union says it's about time the U.S. protected its tire industry.
Last week, President Obama said he would impose a tariff as high as 35% on tires imported from China. On Sunday, China responded, saying it would impose tariffs on American automotive products and chicken meat as a trade battle appeared in the offing.
The tire tariff, a measure to restrict imports of cheap Chinese tires, results from a trade case filed in April with the U.S. International Trade Commission by the United Steelworkers. The union's membership includes about 15,000 U.S. tire workers, or nearly half of the industry's production capacity, including 10,300 workers at
Goodyear
(GT) - Get Report
.
"We demanded penalties against China because it has smothered the U.S. market with tires," said USW President Leo Gerard, in a prepared statement following Obama's decision. "In 2004, its share of the U.S market was 4.7%. Four years later, it was 16.7%.
"In that time, the number of tires it sold rose from 14.6 million to 46 million. As a result, four U.S. tire manufacturing plants closed, and 5,100 workers lost their jobs. Another three plants will close before year's end, throwing 3,000 more U.S. workers on the street."
Gerard said China agreed to follow trade safeguard rules in order to gain entrance to the World Trade Organization, than backtracked. But the U.S. had not previously sought to enforce sanctions in response.
The union is headquartered in Pittsburgh, where the AFL-CIO is currently holding a convention. Obama will address the convention on Wednesday.
"President Obama proved Friday he's got guts -- he enforced trade laws," Gerard said.
While tire companies and the union had jointly sought tariffs in the past, "this time, not one tire company joined us," Gerard said. Instead, Goodyear was "openly neutral," while Ohio-based
Cooper
(CTB) - Get Report
"fought us, as did a collection of rag-tag import firms," he said.
Of course, trade conflicts are never simple. Generally, they involve some of the business world's most drawn out "he said, she said" scenarios. For global companies, the consequences of an apparent victory can be mixed. Take Cooper, for instance. At midday, its shares were up about 10%, while Goodyear shares were up nearly 4%.
"While we expect the tariffs to push up tire prices, primarily in the cheaper categories, we think there will also be negatives," said Standard & Poor's analyst Efraim Levy in a report on Monday. "In particular, Cooper Tire's profit improvement strategy has been counting increasingly on its China-made tire imports to lower its costs and increase its competitiveness." Tariffs could hinder those efforts, said Levy, though he maintained a buy rating on Cooper.
Steel companies, besieged by imports, support the tariffs. And U.S. automakers seem stuck in the middle.
On Monday, Jim Cramer questioned why Obama would "cave into the unions."For what?" Cramer asked. "To make it so we have a trade war with our chief owner, the Chinese? Oops, I meant chief bond owner. (More from Cramer is available at on
Both
Ford
(F) - Get Report
and
General Motors
have said tariffs could increase the price of new vehicles by as much as $150. In a prepared statement,
General Motors
said it "is confident that the current trade-related disputes can be resolved in a constructive manner" because "we believe that a healthy trade relationship is in both countries' national interest."
Independent auto industry analyst Tom Libby said that by imposing tariffs on imports of U.S. automotive products, China "has pulled the auto industry into the trade dispute, picking something that will obviously have a significant impact on suppliers, when the supplier business is in bad straights." Placing tariffs on suppliers also puts Ford and GM "right in the middle," Libby said, noting "it's another challenge for GM, which is the last thing they need."
-- Written by Ted Reed in Charlotte, N.C.
.
