Filed by KOSU News in Business.
September 17, 2009

Next week, the U.S. government will slap a tariff on tires from China, so Kevin Hanagan is urging his customers to buy them now. Hanagan runs a car repair and tire service in Gaithersburg, Md.

At the moment, he’s on the phone with someone looking for trailer tires. Hanagan has some for $86 a piece, but tells the customer to hurry.

“You may want to buy them today because our wonderful president imposed a 35 percent tariff on these Chinese tires,” says Hanagan. “So they will be going up.”

President Obama announced the tariffs last Friday. The United Steelworkers union fought for the measure and says it will save American jobs. But trade analysts doubt the tariff will help workers much and tire dealers say the immediate impact will be higher prices for consumers.

In fact, suppliers have told Hanagan they’ll be raising prices by up to 20 percent. Earlier this week, he bought hundreds of Chinese-made tires to beat the tariff.

“There was a panic buying with me,” says Hanagan, who runs a family auto-shop in this exurb of Washington, D.C. “Hoard what you can, while you can, so that we wouldn’t be caught empty-handed.”

Hanagan says he supports American workers, but thinks the tariff will just raise prices for his most cost-conscious customer: “The average dude who wants to buy some tires for his vehicle.”

Last week, Obama invoked a unique trade provision that allows the government to levy tariffs if Chinese imports “disrupt” the American market. China agreed to the provision when it joined the World Trade Organization in 2001. It applies to no other country that trades with the United States.

Since 2004, Chinese tire imports here have tripled, according to the U.S. International Trade Commission. Paul Moorcones, who runs Radial Tire, a wholesaler in Silver Spring, Md., says he sees more tires from China every year. Moorcones used to stock a trailer tire built by Goodyear in Canada.

“We sold them by the hundreds and they just disappeared from the market for about year,” Moorcones recalls.

When the tire re-emerged, he checked the rims. “Low and behold: Made in China,” he says.

Just how much the new tariff will cost consumers is a matter of debate. Chinese tires dominate the low end of the market where prices are $60 or less.

But the tariff is levied before wholesale and retail mark-ups, so Moorcones thinks it won’t add more than $10 a tire. The United Steelworkers insist it will be even less.

“The American consumer — the impact on them is just very, very negligible,” says Jim Wansley a former president of a Steelworkers local in Tyler, Texas.

Goodyear shut Wansley’s plant two years ago, because it couldn’t compete with low-cost Chinese tires. Wansley hopes the tariff will take pressure off American companies and allow them to bring back some jobs at closed factories.

“Those plants can be re-manned, and the unused equipment can be started back up very quickly,” he says.

Nicholas Lardy, a leading economist on China, is skeptical.

Lardy says companies will just move production in China to another country.

“No one in the tire business is going to open a factory to produce these tires in the United States, because they know these tires are going to be coming next from Brazil and India and other countries that can produce tires more cheaply than we can,” says Lardy, a senior fellow at the Peterson Institute for International Economics, a Washington think tank.

In response to the U.S. tariffs, China has threatened its own on American chicken and auto parts. But Lardy doesn’t expect a trade war. He says the countries need each other too much.

“They lend us the money so we can buy more of their goods than we can afford,” says Lardy. “At least that’s been the pattern in the last five years. Either side, of course, could disrupt it, but they would pay a pretty hefty price.”

Lardy says the tariff isn’t really about international trade.

It’s about American politics.

Lardy and other analysts think the president is rewarding organized labor for support during the election and hoping to inspire unions to fight for his health care plan.

The White House denies all this. So does Tom Conway, a Steelworkers vice president.

“It’s almost ridiculous to think that the White House can honestly link the two together,” Conway says. “I think the president is on the right track with health care, but this tire decision has nothing to do with our support of him on health care.”

Now that the Steelworkers have succeeded in getting a tariff, Lardy thinks other groups will try as well. After all, the list of people who’d like relief from Chinese competition is long. Copyright 2009 National Public Radio