U.S. tariff on China tires pushes prices higher

By David Bailey and Bernie Woodall

DETROIT (Reuters) - A U.S.-China trade dispute is driving tire prices higher for American consumers and threatens to complicate business for U.S. auto companies in the booming Chinese market if unresolved, analysts said.

The Obama administration said on Friday it would impose steep tariffs on tire imports from China, a move wholesalers said would prompt near-immediate price increases at repair shops and tire retailers.

Shares of U.S. tire makers rose as investors reacted to an expected increase in profit margins as lower-cost imports are hit by price increases expected to reach 50 percent or more.

But U.S. tire distributors and some manufacturers had opposed the imposition of the tariffs and analysts cautioned the Obama administration's action could complicate longer-term efforts to diversify production to lower-cost regions.

U.S. auto manufacturers, who are counting on sales in China to help ride out a global downturn, could also face a disruption if the Chinese government pushes ahead with a dumping investigation on parts exports to that market.

"It will be bad news for consumers and, ultimately, it probably hurts the people they are trying to protect," Morningstar analyst Dave Whiston said.

Goodyear Tire & Rubber Co shares closed 3 percent higher and Cooper Tire & Rubber Co shares ended the day up 7 percent after jumping as much as 13 percent after the steep additional duties were announced.

The United Steelworkers union, which represents workers at U.S. tire plants, initiated the trade case in April, contending that a flood of Chinese tire imports had led to a drop in U.S. production, job losses and plant closings.

Findlay, Ohio-based Cooper, which had ambitious plans to import tires from China, had opposed the tariff.

Akron, Ohio-based Goodyear, the industry leader, took no stance. Less than 2 percent of the more than 71 million tires Goodyear sold in North America last year came from China.

By contrast, Cooper had expected to import 3 million tires from China for U.S. sales this year and to raise that by 50 percent next year.

Cooper spokesman Curtis Schneekloth said those plans were under review. "Short-term, we're doing some price increases and will be making some tactical moves," he said.

Analysts said the tariffs represented a short-term opportunity for Cooper to raise prices even as it reexamines its plans for exporting from China.

"We have been very impressed with Cooper's plan to lower costs and recapture share and drive earnings higher, so any reduction in China exports provides Cooper a terrific opportunity to gain share," KeyBanc Capital Markets analyst Saul Ludwig said in a note to clients.

But Standard & Poor's equity analyst Efraim Levy cautioned the U.S. tariff "could hinder or derail" Cooper's effort to cut production costs despite the boost from higher prices.