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.
BOOMING MARKET FOR CHINA TIRES
China’s share of the U.S. tire market grew to 17 percent in 2008 from nearly 5 percent in 2004 as the tire makers looked to lower-cost regions to produce low-priced tires.
By value, U.S. imports of tires from China increased nearly fourfold to $1.8 billion over the same period.
U.S. consumers could see prices rise on low-end replacement tires imported from China from between about $50 to $60 to $85 to $90 per tire, one distributor said.
“It’s going to end up costing the consumer,” said Earl Buono, co-owner of Stoney Hollow Tire, an independent tire distributorship based in Martins Ferry, Ohio.
The Tire Industry Association, a group representing tire dealers, called the tariff increase a “politically motivated decision that will end up costing more jobs than it saves.”
The lobby representing tire manufacturers with plants in the United States took no position on the tariff.
China denounced the U.S. decision as protectionism and launched an anti-dumping investigation into imports of U.S. auto parts and other items, including chicken.
A U.S. trade official said the United States was confident the curbs on tire imports were consistent with World Trade Organization rules.
But the dispute threatens to draw in U.S. auto companies, most of which have joint ventures in China that produce car parts and full vehicles for the fast-growing Chinese market.
The China market is critical for U.S. automakers looking to target growing regions, while restructuring operations in high profit mature markets in North America and Western Europe.
The United States exported just $893 million in auto parts to China compared with over $9 billion of imports in 2008.
But Chinese automakers are not yet selling in the U.S. market and U.S. companies shipped over $950 million of vehicles to that market in 2008.
Morningstar’s Whiston said he would not expect an impact on U.S. auto manufacturers such as General Motors Co and Ford Motor Co unless the situation worsened.
The new U.S. duties of 35 percent on Chinese tire imports will take effect September 26 and add to an existing 4 percent duty. The duties would fall to 30 percent in the second year and to 25 percent in the third year. The new duties are lower than the U.S. International Trade Commission recommended.
Reporting by David Bailey and Bernie Woodall; Editing by Andre Grenon, Phil Berlowitz
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