The International Trade Commission (ITC) has revealed some of the how and why it believes the domestic tire industry is being harmed by tires imported from South Korea, Thailand, Taiwan and Vietnam.
Following its unanimous vote on July 14 to advance the preliminary tariff investigation to its next step, the commission next prepares a lengthy report to detail its findings. That 260-page report was released days ahead of its required timeline.
It provides some guidance of what the ITC is required to consider, but then also gives a glimpse at the data and the arguments that the United Steelworkers and other parties have made along the way.
Things that the ITC considers
To determine whether the domestic industry is harmed or threatened by the imported products, the ITC considers three factors:
- The volume of subject imports;
- Their effect on prices of domestically produced like products; and
- Their impact on the domestic producers - but only in the context of U.S. production operations.
The material injury is “harm which is not inconsequential, immaterial or unimportant.”
In determining these things, the ITC says it considers “all relevant economic factors” that affect the industry in the U.S. It’s not uncommon for other economic factors to also be at work, and the ITC has to study and differentiate what’s caused by the subject imports, and what might be caused by something else. Essentially, the ITC needs to determine that the injury to the domestic industry “can reasonably be attributed to the subject imports.”
To answer the question of “harm” and also address the above topics, we followed the ITC’s lead and broke the data into six parts:
Demand for tires
There was general agreement among the parties who submitted data and responded to questions that demand for consumer tires either increased, or remained unchanged, during the period of investigation. Some noted that demand had declined recently due to COVID-19. In general, there was also agreement that demand grew for larger tires of higher value.
U.S. consumption increased 2.6% from 2017 to 2018, from 306.6 million tires to 314.4 million tires, and increased another 2% from 2018 to 2019, to 320.8 million tires.
Apparent U.S. consumption was 8% lower in 2020, at 71.9 million tires, compared to 78.1 million tires over the same period in 2019.
Supply conditions
The largest share of the U.S. passenger and light truck tire market was met by the domestic industry, followed by tires imported from places other than South Korea, Thailand, Taiwan and Vietnam. The ITC says tires from other countries held 32.7% of the market in 2017, 30.2% in 2018, 30.1% in 2019 and 30.6% in interim 2020. The largest sources for these tires were Canada and Mexico.
Consumer tires from the four regions under investigation increased steadily over the same timeframe - from 23.2% of the market in 2017, to 25.1% in 2018, 26.6% in 2019, and 28.9% in the interim of 2020.
But the ITC says the domestic producers did lose market share over the course of the time it analyzed the industry. (The specific numbers were redacted.) Fourteen tiremakers account for all of the consumer tires produced in the U.S. - most of which are part of multinational corporations that build tires all over the world. The ITC also notes that “several” new firms began production of passenger and light truck tires in the U.S., several others reported expansions, and one company closed a plant in Gadsden, Ala. (Though the company wasn't named, we know that was Goodyear Tire & Rubber Co.) Collectively, tire production capacity has increased in the U.S. since 2017.
Substitutability
The ITC, as well as the majority of U.S. tire producers and importers, agreed that the tires under investigation are “always or frequently interchangeable.”
But price is an important factor in buying consumer tires, though the ITC notes other factors, such as quality, availability and brand, are important, too.
One thing the parties didn’t agree on was the role and significance of private label tires and branding in the U.S. market. The ITC says it will study those issues in its final phase of the investigation.
It’s also going to study tiers of tires, because the parties couldn’t agree on whether the replacement market is divided into tiers or not. The United Steelworkers union argues that the tire makers and importers serve the entire market, including original equipment and replacement. The union says the record doesn’t call for those clear dividing lines.
Volume of imports
The Tariff Act asks the ITC to determine whether an increase in volume of imports is significant. From 2017 to 2019 tires imported from South Korea, Thailand, Taiwan and Vietnam increased from 71.1 million units to 85.3 million units, up 19.9% in that time span. In the interim of 2020, imports from the four regions stacked up to 20.8 million units.
The ITC says it finds the increased volume of tires from these regions to be “significant” both in absolute terms, and also in relative terms when compared to domestic production and U.S. consumption.
Pricing effects
The ITC “examined several sources of data in our underselling analysis” — including pricing data, import purchase cost data, responses to a lost sales/lost revenue questionnaire, plus other data on the record. Nine U.S. tiremakers and 37 importers provided usable pricing data for sales of the requested products.
The commission also collected quarterly pricing information on sales of four products shipped to unrelated U.S. customers. These are the tires the ITC examined:
- 225/65R17, 100-105 load index, H rated;
- 205/55R16, 89-94 load index, H rated;
- 215/55R17, 93-98 load index, T rated; and
- LT245/75R16, 111-116 load index, R rated.
From the first quarter of 2017 to the first quarter of 2020, domestic prices of products No. 1 and 4 increased, while domestic prices of tires 2 and 3 decreased during that same timeframe. Combined, the four regions under investigation agreed that pricing for tire 2 decreased over time and pricing for tire 4 increased over the same span of time. But the pricing trends for the first and third tires listed weren’t consistent among the four regions.
The ITC redacted the numbers to show how often the tires imported from the four regions under investigation undersold or oversold a domestically produced tire. But it’s clear from the report, even without the figures included in the analysis, the underselling was more prevalent.
Based on all of the data, the ITC says the preliminary record indicates “subject imports significantly undersold the domestic-like product. Given that the domestic-like product and subject imports are moderately-to-highly substitutable and that price is an important factor in purchasing decisions, the record also indicates that this underselling resulted in a market share shift from the domestic industry to subject imports.
“Consequently, for purposes of the preliminary phase of these investigations, we find that cumulated subject imports have had significant adverse price effects.”
Impact of imports
This is where the ITC examines all kinds of data that affect the industry from plant capacity and utilization to the number of employees in tire production, the hours they worked and the wages they were paid.
Total net sales value in the domestic industry fell from 2017 to 2019, and even though it remained profitable, “its profitability declined by every measure: gross profits, operating income and net income.” The ratio of operating income to net sales dropped, as did the ratio of net income to net sales. Capital expenditures decreased, while the domestic producers spent more on research and development.
The ITC says it has found that “due to competition from subject imports alleged to be subsidized and/or sold at less than fair value in the U.S. market, the domestic industry lost sales and market share during the period of investigation, resulting in lower revenue than it would have realized otherwise in an expanding market.”
And while the focus is on the U.S. domestic tiremakers, the ITC notes that the tires imported from South Korea, Thailand, Taiwan and Vietnam also took market share from tires imported from other countries. And those tires from other countries - Canada and Mexico included - appear to have been priced higher than the tires under investigation in the four regions.
Some of the respondents apparently argued that there were other factors at work and were the cause of injury to the U.S. tire industry.
“Specifically, they argue that the domestic industry ceded parts of the U.S. market to subject imports because U.S. producers do not provide certain tires, particularly in certain sizes and under certain private labels.”
Also, there are “different views” on the closure of Goodyear’s plant in Gadsden, with the USW “alleging the closure was due at least in part to subject imports,” while other respondents said it was a business decision to no longer produce certain tires. That’s another topic the ITC will continue to explore in the next stage of the investigation.
One more assertion was that the domestic injury’s claims of harms were actually a result of new tiremakers producing tires in the U.S., and thus increasing competition. But the ITC didn’t buy that.
“We find this argument to be unpersuasive. Even if the entry into the U.S. market by additional domestic producers increased competition among U.S. producers, this does not explain the domestic industry’s loss of market share to subject imports.”
