October 26, 2020

Why U.S. Clamps Chinese Tire Enterprises

Recently, the U.S. Department of Commerce announced preliminary findings that there are subsidies for passenger cars and light truck tires imported from China. The United States intends to impose countervailing duties on such products.

The U.S. Department of Commerce stated in its statement that the U.S. side has determined that China’s sales of passenger car and light truck tires to the United States have received improper government subsidies, ranging from 12.5% ​​to 81.29%.

Industry experts said that the results announced by the United States are just preliminary rulings on "anti-subsidy", and the investigation results on "anti-dumping" will be announced in January next year. It is estimated that the U.S. Department of Commerce will make a final ruling on anti-subsidy investigations in April next year, and the US International Trade Commission will make a ruling in May next year.

If both parties make a positive final ruling, U.S. Customs will formally introduce a countervailing duty.

The incident originated on June 3 this year. Under the US Steel Workers Union (USW) application, the United States launched an “anti-dumping” and “anti-subsidy” investigation on China’s passenger car and light truck tires. The amount involved was more than US$3 billion. .

Since the USW submitted its application in June, the “double reverse” incident has continued to heat up. There are even pessimistic views in the industry: After two months, Chinese tires will basically exit from the US market.

The U.S. Department of Commerce in the tire industry always seems to have trouble with Chinese companies.

In the 2009 special tire protection case, the United States imposed 35%, 30% and 25% punitive tariffs on Chinese passenger and light truck tires in the three years since 2009. This made Chinese tire companies that mainly export to the US market suffer a general loss. After the “special security case” was concluded, China’s tire products had only about 5% of their export tariffs to the United States in 2012 and 2013, and Chinese tire companies had therefore spent two years of peaceful life.

In the face of the new round of sanctions that the US Department of Commerce may launch, domestic tire companies are all concerned that the top 35% of tariffs imposed on “special protection cases” can be digested by domestic companies and foreign customers. This time, a 60% tariff will be a fatal blow for Chinese tire companies. This will make the U.S. market shut the door for Chinese companies.

The author believes that the U.S. Department of Commerce has issued a "double reverse" investigation on Chinese tire export enterprises for three reasons:

First, the U.S. Department of Commerce does not allow Chinese companies to absorb excess capacity in the United States.

According to the forecast of China's tire industry, in 2015, there were only 120 million new production capacity in the industry, and the overcapacity rate was 10% to 15%. The homogeneity of products was serious, and there was a certain degree of uneven quality. In the past two years, the volume of Chinese tire companies' exports to the United States has increased sharply. This is one of the reasons why the United States has launched a “double counter” investigation.

Second, the world economy is in a sluggish state. If the United States wants to return to manufacturing, it must protect the interests of domestic manufacturers.

As the world's largest car ownership country, 50% of tires in the United States originate from imports, and it is also the most important overseas market for Chinese tires. Its imported tires account for about one-third of the total tires exported by China. If we squeeze out some of China’s share of the tire market in the United States, in addition to increasing hundreds of thousands of jobs, it will also help restore the U.S. economy.

Thirdly, the Chinese government has increased the export competitiveness of its tire companies by taking various degrees of subsidy for passenger cars and light truck tire products to the United States and has occupied a large share of the US tire market.

In the view of the US Department of Commerce and the Iron Workers’ Union, this kind of competition is not justified and it is necessary to carry out “double counter” investigations. Once it is verified, heavy penalties will be imposed.

According to US Customs statistics, China’s tire industry last year exported US$2.078 billion to the United States. In the first quarter of this year, it exported US$510 million. Due to different tariffs between China and the United States, China Customs statistics show that last year, the amount of Chinese tires exported to the United States was US$3.34 billion.

For Chinese tire companies, the haze of the “China-US Tire Special Safeguard Case” in 2009 has not yet gone. What impact will the “double-anti” investigation hit in the future and will bring to Chinese tire companies?

First of all, excess capacity cannot be digested through exports, and the tire industry has shuffled.

China is known as the “World Tire Factory” and 26 of the world’s 75 largest tire manufacturers have made it to China, among which 12 are located in Shandong. As of the end of 2013, there were 287 tire manufacturing companies in Shandong Province, but many of them were small businesses. They were small in size, low in profitability, and weak in market risk resistance. In this situation, new production capacity continues to be launched.

In the author's opinion, this part of the new production capacity will be the biggest affected person in the United States' "double reverse". Many small and medium-sized tire companies make a living out of exports, and the United States is also China's largest exporter of tires. This "double reaction" will result in the elimination of a large number of small and medium-sized enterprises.

Moreover, other countries have followed the example of the United States and initiated similar investigations on Chinese tire products.

What is even more frightening is that, with the sluggish world economy, trade protectionism will regain its head and the Chinese version of the Marshall Plan will encounter difficulties.

The United States' "double reverse" investigation has a conductive effect. The EU, Japan, India, and Australia can follow suit and form a chain reaction. On September 10, the Russian-White-Kazakh customs union followed suit in the United States and conducted anti-dumping investigations on imported trucks, buses, trolleybuses, and trailer tires. The amount involved reached 400 million U.S. dollars. This will make China's export trade worse.

Finally, Chinese tire companies can only use the methods of going out to build factories to escape greater trade sanctions.

Since the "China-US Tire Special Protection Case" in 2009, many Chinese-owned tire companies, including Double Star and Race Wheel, have begun to shift production capacity to Southeast Asia and other regions.

Double Star Group's contract for the establishment of a factory in Southeast Asia was signed in August this year, and its Southeast Asian factory will be partially completed next year. A person from Saihong International Tire Co., Ltd. said that the company had built a factory in Vietnam in 2012 in order to guard against more severe sanctions against tire export companies in Europe, America and other countries.

The author believes that Chinese tire companies to build factories in Southeast Asia, not only can improve the problem of difficult rubber sales there, but also to promote the excess capacity of Chinese tire companies "going out", and to avoid the negative impact of the United States against China's tires against the two cases.

However, the overseas establishment of factories requires a large amount of capital investment. Really able to bear this part of the funds are mostly domestic large-scale tire companies, and small and medium-sized tire companies can only be eliminated.

Although a new round of US “double counter” investigations into China’s tires is advancing, domestic tire companies have already felt the slightest chill. It can be predicted that in the near future, some large tire companies with strong strength will go overseas to build factories, and another small and medium-sized tire enterprise may face the test of life and death.

With the rise of trade protectionism, it is probably not easy for China to rely on exports to export too much production capacity.

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