Running head: U.S.

TARIFFS ON TIRE IMPORTS FROM CHINA 1

U.S. Tariffs on Tire Imports from China.

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U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 2

In 2009, the United States President Obama declared that the US government would

impose 35% tariffs on light truck tires and automobiles from China. According to many, this

decision was perfect and appropriate especially to the American tire workers union and

Steelworkers. However, the Tire Industry Association claimed that this tariff would not only

reserve American jobs but force firms to relocate their companies to other nations where they

would manufacture tires cheaply. A year later, the United States China Business Council

relinquished a report stating that the tariff meant that tires from other nations had flooded the US

market rather than promoting the American tire makers (Lin, 2015). Nevertheless, the US

government disagreed with this report. In 2010, the WTO supported the US tariff since Chinas

tires had drastically affected the US tire makers.

Due to this dynamic turn in the US market, there were potential effects of this tariffs and

several groups benefited. For instance, the United Steelworkers were some of the beneficiaries of

this tariffs. Statistically, this company was able to increase their production by 15%. This was a

great improvement since the company could now compete effectively with the other existing tire

companies. Despite the tariff, the US tire companies did not benefit for long since other

companies from Mexico, Thailand, and Indonesia started taking advantage the tariffs imposed on

Chinas imports. For the first year, the tariff was to be 35%, 30% in the second year, and 25% in

the final year respectively. However, the United Steelworkers filed a complaint that the tariff was

to be 55%, 45% and 35% for 2009, 2010, and 2011 respectively (Mankiw, 2011). According to

China, this was a violation of international free trade laws which was a clear indication of U.S.

protectionism.

Despite imposing tariff on the Chinas tire imports, it was also important for the U.S to

consider its predicaments. First, this tariff would lead to loss of job to many U.S citizens. This
U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 3

rendered many U.S citizen jobless since the Chinese companies were unable to cope with high

tariff imposed on their imports. According to statistic, the tariff led to over 25,000 job loss to the

U.S citizens. Moreover, the manufacturing industry experienced a little no job creation due to the

tariff. This tariff also resulted in the loss of more than a dozen job loss hence increasing

unemployment in the country. For example, the Americans who were employed in this Chinese

tire firms became unemployed since the Chinese companies were relocating to other nations.

Other than the mentioned, the implementation of this tariff also leads to a decrease in the United

States national income by $240-$340 million annually (Mankiw, 2012).

Before the implementation of the tariff, there were a lot of factors that the U.S

government ought to consider. First, the tire production was only dominated by a few

multinational organizations. Secondly, there exist three different tiers of tires. In 2009, the tire

production was dominated by a few multinational companies, for example, in the United States,

there was only four firms. This was Cooper, Goodyear, Bridgestone, and Michelin (Lin, 2015).

Nevertheless, this firms faced stiff competition from the Chinese companies who used low

production cost hence flooding the market with their products. This brought a great impact to

U.S economy since the local firms were being overpowered by Chinese companies. Additionally,

companies from other countries such as Thailand, Mexico, and Indonesian also competed with

the U.S tire firms. This brought a stiff competition which led to market flooding. Notably, the

impacts of the tire imports were complicated than it seemed.

While these tariffs were beneficial to some people, many U.S citizens ended up

unemployed. A study conducted some months after the tariff was implemented revealed that

many U.S citizens ended up unemployed. This was so because many citizens were employed in

this multinational firms. As a result, the implementation of this tariff drove away several Chinese
U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 4

companies out of United States leaving many unemployed. However, as the rate of

unemployment increased, the level of imports increased. This was so because other firms from

other countries such as Thailand and Mexico took advantage of the tariff imposed on tire imports

from China. Therefore, this was not a solution to the problem that the U.S tire companies were

facing. Moreover, the U.S tire imports increased drastically except in 2009 (Mankiw, 2011). In

2010, the there was an increase in the employment rate in U.S after the country stabilized.

The U.S tire industry lost competitiveness due to the price increase. This was a major

drawback since many expected to see the America Tire Industry revived. The low-end tire

supply from China had led to collapse and closure of several companies within U.S. As a result,

many firms were forced to relocate or find new markets for their products since they were unable

to compete effectively with the Chines firms (Mankiw, 2012). Imposing the tariff led to the

revival of other multinational companies across the globe. For instance, several firms in Thailand

came back to light since they were now able to compete effectively and fairly. China is well

known for mass production, therefore, competing which chines companies can sometimes be a

hectic and daunting jobs to many. Furthermore, China has ventured into many markets across the

globe. Therefore, the tariff did not have great impact to its economy since it depends on many

nations other than U.S.

Despite the critics that followed the tariff implementation, it was noted that the sales of

tire decreased. This was so because many consumers took long to replace their tires. This was

due to the high tire prices, and this meant the manufacturers had to wait longer before consumers

replace their tires (Hill, 2014). Due to cheap raw materials and availability of cheap labor in

China, competing with such firms was very hectic. The high tariff imposed on Chinas tires also

affected other sectors of the U.S economy. For example, most automobile companies in the U.S
U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 5

rely on Chinese product to complete their product of goods. For instances, the land rover

company relies on Chinas affordable spares to assemble cars. Due to the tariff, the production

cost of such product rose and this lead to increased cost of products which later affected the U.S

economy.

Being a country composed of several multinational companies, the Chines imports still

found ways to penetrate other markets across the globe. This made the U.S tariff only effective to

the American Tire industries since they were not still able to compete with them globally. For

instance, China is very good at mass production (Hill, 2014). Moreover, Chine has utilized the

latests technology ins also sectors of the economy hence making the reduction cost low.

Therefore, China economy was slightly affected by the tariff since most of their tires were

imported to U.S. Regardless of this drawbacks, loyal customers within U.S were still able to

import these tire due to their quality and durability. Thus, the tariff did not only affect China but

U.S as a whole.

In conclusion, the U.S. Tariffs on Tire imports from China had both positive and negative

impacts on these two nations. However, careful research was done, and it was found that the pros

outweighed the cons. Having many multinational companies, Chinas tires had flooded the U.S

market making the U.S tire companies such as Bridgestone operate on the low. In other words,

the U.S tire companies faced stiff competition from these Chinese companies. Moreover, this

tariff favored U.S tire companies since they could now compete effectively with other

companies. However, the tariff also brought problems to the U.S economy. During the first year

of implementations, the country experienced increased unemployment rate. This was due to

relocation these Chinese companies to other nations. Statistically, over 25000 U.S citizens ended

up unemployed. Apart from that, the tariff also led to the loss of jobs to many Americans. For
U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 6

instance, people who were employed in the import sector were no longer needed since there was

an increase in tariff. Even though the tariff was imposed on Chines imports, the U.S tires

companies still faced competition from other nations. For example, Thailand, Mexico, and

Indonesia took advantage of this and started importing their products to the U.S. This still

created competition to their companies.

U.S. TARIFFS ON TIRE IMPORTS FROM CHINA 7

References

Lin, S.-Y. (2015). The Global Economy in Turbulent Times. New York, NY: John Wiley et Sons.

Mankiw, N. G. (2011). Essentials of economics. Cincinnati, Ohio: South-Western.

Mankiw, N. G. (2012). Principles of macroeconomics. Mason, OH: South-Western Cengage

Learning.

Course text: Hill, C. W. (2014) International Business: Competing in the Global Market..