US impose heavy duties on China-made tyres

US impose heavy duties on China-made tyres

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Recently, the US Government thought that it would be a good idea to raise import duties specifically for China-made tyres. Effective 26 Sept, Passenger Car tyres (PCR) and Light Truck tyres (LTR) will be slapped with an additional 35% import duty on top of the existing 5% that they’re paying now.

Most Malaysians reading this news would probably struggle to repress a chuckle as the Chinese government has quickly moved to accuse the Americans for practicing ‘protectionism’ (where have we heard that word before?) of their local tyre industry. The stage is set for more massive drama as Beijing has vowed ‘retaliation’.

Casting the comedy and drama elements aside, will these developments in anyway affect our market? A quick and intuitive answer is no, and why should it? News on Uncle Sam’s duty structures are usually “oh, ok” items, i.e. news you read, say “oh, ok”, and move on to the next without so much as raising an eyebrow.

However, our partners at Tyrepac feel that effects of the Obama administration’s latest decision will be felt in our region. For a start, they believe that having had to contend with the price undercutting of the Chinese tyres, the removal of this decisive advantage will swing the market balance in favour of tyres made in other parts of Asia.

Also, with demand from the US expected to drop, and the EU market also weakened, the Chinese manufacturers will be stocking less rubber. This should lead to a drop in the price of rubber and other tyre-related raw materials. Whether this will take place, and the savings passed to the consumer remains to be seen.

Tyrepac tells us we can expect a short term drop in tyre prices, as much as 15% but no more, due to reduced raw material prices. Over the next 6-9 months, most traders and distributors will buy very carefully, though prices should stabilize after this period.

Being the business-savvy entrepreneurs they are, we can expect the Chinese manufacturers to re-route portions of their future US shipments to other parts of the world. For this reason alone, Tyrepac expects a sudden increase between 10 and 15% of PCR/LTR supply in the market.

The Americans themselves are expected to start buying again in about 3 to 6 months, but remember, we have speculated that the Chinese might route their tyre supply elsewhere, right? This, then, means a reduced supply having to cope with increased demand. If there’s anything this writer learned from Marketing 1010 class in uni, is that demand exceeding supply always equates bad news for the consumer.

At this point, with the Chinese’s advantages in the market all but wiped out, consumers in the US will probably switch back to American tyres, with the cost conscious going for the lower tier variants. This will force the prices of the American tyres up to the point where the Chinese’s advantage is restored, and demand for their products will rise again.

For the short term, expect the Chinese to slash prices due to reduced raw material prices and also to enable them to sustain their production. The American manufacturers will face a sudden increase in demand for their lower tier tyres, and they should be increasing production levels to compensate.

Although public perception of China products is that they are both cheap in price and low in quality, the fact is that China is very capable of producing quality products. Makes which focus on quality and marketing should endure this test with no issues, but those banking on price advantage and also those heavily dependent on the US market are expected to be badly hit.

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