Automotive, tire industries worried about potential sales downturn

Tariffs on aluminum and steel imports this month from Mexico, Canada, and the European Union, as well as those from China, are troubling leaders in the automotive and tire industries.

Scott Clark, the Chairman and President of Michelin North America, said the tariffs are “a real concern.”

“Some of the steel that all manufacturers use in making tires in North America is not available in North America. We're all dependent on importing that steel,” he said.

Industry analysts are concerned that higher prices will lead to a slowdown of new automotive and tire sales. Canada is a major exporter of steel plate and coil steel used by manufacturing. The country accounts for about half of the raw aluminum imported by the U.S. and about a fifth of finished steel imports.

The U.S. tariffs — 25 percent on steel and 10 percent on aluminum — were originally announced in March, however Canada, Mexico, and the European Union were told they would have temporary exemptions. Last week, it was announced that those exemptions would not be renewed.

The administration has directed the U.S. Department of Commerce to investigate whether imported automobiles and auto parts pose a threat to America’s national security. Such a recommendation could include imposing global tariffs of up to 25% on all automobiles and auto parts imported into the U.S.  Those tariffs could take effect prior to the mid-term elections. (Public comments are due by Friday, June 22.)

Additionally, the administration said in June that the U.S. would impose 25% tariffs on $50 billion worth of goods from China. The Chinese government retaliated, saying it would impose the identical tariff amount on 659 U.S. products worth $50 billion — which include agricultural products, marine products, and automobiles. A week later, the White House said that if China imposes those tariffs, it would impose tariffs on an additional $200 billion worth of Chinese goods.

The last time both the automotive and tire industries were impacted by tariffs was in 2009.  According to the American Enterprise Institute (AEI), using data from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the International Trade Commission, tariffs on tires from China cost U.S. consumers $926,500 for every U.S. job that was saved, and led to the loss of three retail jobs for every factory job saved.

The U.S. tire industry is worried. Anne Forristall Luke, President and CEO of the U.S. Tire Manufacturers Association, said she was “deeply disappointed” by news of the tariffs, and that her organization is already “seeing swift retaliation and proposed countermeasures from our closest trading partners which is harmful to America’s manufacturers.”

She added that the tariffs will damage the $27 billion U.S. tire industry. “Imported high-quality steel is critical for tire production. U.S. tire manufacturers depend on grades of steel which are unavailable domestically to produce tires. This is why effective trade policies with countries like Canada and the EU are vital to our business operations,” she said.

As reported in Automotive News, an analysis by the Peterson Institute for International Economics predicts automakers will suffer a 1.5 percent loss in productivity following the tariffs, resulting in a 2% drop in employment, as auto prices for consumers rise and demand dips.

The ripple effects of decreasing sales will cost 195,000 jobs in the overall economy. The tariffs on U.S. auto exports will reduce domestic auto production by 4%, costing 50,000 industry jobs and 624,000 total jobs.

AEI calculated that higher prices on steel imports cost consumers around $1.1 billion in 2011.

American International Automobile Dealers Association President and CEO Cody Lusk released a statement in late May stating that, “The decision to forge ahead with these steel and aluminum tariffs will adversely impact the price of consumer goods, including the millions of new vehicles Americans buy each year.”

Were you in business in 2009? How did your tire or automotive company fare? If you have any advice for tire and auto service providers, please leave your comments below. We will review submissions and post the most helpful ones.