UVA-GEM-0159

Jul. 31, 2018

Tariffs on Tires (A)

In 2009, Chad Bown, at the time a fellow at the Brookings Institution, called the impending decision to
impose tariffs on tire imports “the administration’s real test on trade policy…they [were] either going to
implement new trade barriers or not.”1 Bown felt that until September 2009, President Barack Obama’s
administration had been sending conflicting signals on trade. On the one hand, the Obama administration had
not wanted to send protectionist messages, but on the other, it had not opposed the inclusion of a “Buy
American” provision in the $787 billion stimulus package that Congress had passed to fight the recession
following the financial crisis of 2007–08. To be clear, the North American Free Trade Agreement (NAFTA)
forbade such restrictions. “Buy American” provisions effectively excluded Canadian manufacturers from
bidding for US infrastructure projects, and Canada’s Prime Minister Stephen Harper had criticized them.2

In a break with the trade policies of his predecessor, George W. Bush, President Obama announced that
his administration would impose a hefty tariff for three years on low-cost automobile and light truck tires
imported from China.3 The announcement was released on a Friday in September at 9:45 p.m., when the
population’s attention tended to switch from news to sports and leisure and after most commentators had left
the capital.4

The United Steelworkers of America, which represented workers in many US tire production plants, had
filed a petition asking for protection earlier in 2009. Leo Gerard, the president of United Steelworkers
International, praised President Obama’s decision: “The President sent the message that we expect others to
live by the rules, just as we do.”5 Ohio Senator Sherrod Brown, a Democrat who had supported the tariffs,
stated, “If American workers and manufacturers are going to compete in the global market, they need to have
a government that uses trade enforcement tools.”6 US Trade Representative Ron Kirk interpreted President
Obama’s decision in a similar light, as no longer allowing trade partners to “run roughshod over us.”7 Kirk saw
the tariff on Chinese tires as an extension of the president’s efforts to enhance the enforcement of trade laws,
which was the position Obama had adopted time and again as a candidate in 2007. Could the tire safeguard
provide a template for how policymakers could protect American workers?

1 Annys Shin, “Tire Tariff Decision Poses First Chinese Trade Policy Test for Obama,” Washington Post, August 7, 2009.
2 Shin; Irwin M. Stelzer, “Obama’s Tire Tariff,” Weekly Standard, September 12, 2009.
3 See Sunghoon Chung, Joonhyung Lee, and Thomas Osang, “Did China Tire Safeguard Save U.S. Workers?” European Economic Review 85 (2016): 22–

38.
4 Stelzer.
5 Edmund L. Andrews, “U.S. Adds Tariffs on Chinese Tires,” New York Times, September 11, 2009.
6 Andrews.
7 Phil Levy, “Obama Tires of Free Trade,” Foreign Policy, September 14, 2009; Andrews; Stelzer.

This case was prepared by Peter Debaere, Professor of Business Administration, Darden School of Business, and Joonhyung Lee, Associate Professor,
Department of Economics, University of Memphis. It relies heavily on Joonhyung Lee’s research on the tire protection safeguard, published in Sunghoon
Chung, Joonhyung Lee, and Thomas Osang, “Did China Tire Safeguard Save U.S. Workers?,” European Economic Review 85 (2016): 22–38. This case was
written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2018 by the
University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
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highest quality, so please submit any errata to [email protected].

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The Obama administration’s 2014 and 2015 fact sheets on trade highlighted US enforcement of
international trade laws during Obama’s time in office since 2009. The June 2014 fact sheet on “Trade
Enforcement” had the motto, “Leveling the Playing Field for U.S. Workers and Employers,” and stated that
the administration’s trade record demonstrated enforcement as a top policy priority. The fact sheet noted 19
complaints filed with the World Trade Organization (WTO) from 2009 to 2014 and touted increasing numbers
of cases against China.8 The January 2015 fact sheet also emphasized enforcement (its title: “The Obama
Administration’s Unprecedented Trade Enforcement Record”) and called the Interagency Trade Enforcement
Center, which President Obama established by executive order in 2012, “a historic commitment of personnel
and budget to enforcement efforts, giving the United States greater capacity to find and prove breaches of trade
agreements.”9

The Industry

The global tire industry was worth $140 billion; its top 20 companies each had over $1 billion in sales (see
Exhibit 1).10 The industry was dominated by large multinationals. The top 20 companies accounted for about
80% of sales, and the top 5 for about half. Most of the global companies were headquartered in Asia, and
together they accounted for almost 40% of global sales. The Goodyear Tire & Rubber Company (Goodyear)
and Cooper Tire & Rubber Co. (Cooper) were the only two US companies remaining in the top 20 since the
American brands BFGoodrich and Firestone had been bought by French Michelin and Japanese Bridgestone
Corp. (Bridgestone). Goodyear and Cooper, combined, served 15% of the global market in 2009. Their world
headquarters were in Ohio. Goodyear had the largest market share in the United States. It had 62 facilities in
26 countries, distributed over 4 regions: 25 in North America; 20 in Europe, the Middle East, and Africa; 7 in
Latin America; and 10 in Asia. Goodyear’s regional headquarters outside the United States were in Belgium,
Brazil, and China, and its 2009 annual report stated that all regions exported to each other.11 Goodyear and
Cooper were not the only companies to serve the US market, however. Michelin, Pirelli & C. S.p. (Pirelli),
Continental AG (Continental), Bridgestone, and Yokohama Rubber Co. Ltd. (Yokohama) were the largest tire
manufacturers with longtime manufacturing presences in the United States. Many of these multinationals had
entered the US market by acquiring domestic companies.12

Tire manufacturers produced tires that differed by use (cars, buses, trucks, aviation, equipment, etc.) and
quality (flagship or high quality, secondary or medium quality, and mass market or low quality). Next to
producing tires, tire manufacturers were also often involved in retreading tires, selling tread rubber and
retreading materials, and providing automotive repair (tire) services.13 About half the US market was supplied
by typically lower-cost imports; see Exhibit 2 for a breakdown of the imports. In 2008, 10 companies, 8 of
which were multinationals, produced the 10 types of tires that were targeted by President Obama’s tariffs.14
Imports from China had grown markedly in the last 10 years, from $5.2 million in 1999 to $1.56 billion in 2008;
see Exhibit 3 (which also includes employment in the US tire industry) and Exhibit 4. For reference, tire

8 FACT SHEET: Trade Enforcement—Leveling the Playing Field for U.S. Workers and Employers (Office of the United States Trade Representative, Executive

Office of the President of the United States, June 2014), https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2014/June/Trade-

Enforcement%E2%80%93Leveling-the-Playing-Field-for-US-Workers-and-Employers (accessed Mar. 22, 2018).
9 FACT SHEET: The Obama Administration’s Unprecedented Trade Enforcement Record (Office of the United States Trade Representative, Executive Office

of the President of the United States, January 2015), https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/january/fact-sheet-obama-

administration%E2%80%99s (accessed Mar. 22, 2018).
10 Estimated based on the top 75 companies; see “2009 Global Tire Company Rankings,” Rubber & Plastics News, August 1, 2009.
11 Goodyear Tire & Rubber Company annual report, 2009, 100.
12 “Tires Made in USA: American and Foreign Brands,” UTires.com, June 24, 2017, https://www.utires.com/articles/tires-made-usa-american-foreign-

brands/ (accessed Mar. 22, 2018); and Hitesh Bhasin, “Top 10 Tyre Companies in the World,” Marketing91.com, December 17, 2017,
https://www.marketing91.com/top-10-tyre-companies-world/ (accessed Mar. 22, 2018).
13 Goodyear annual report, 2009, 100.
14 These 10 companies were Bridgestone, Continental, Cooper, Denman Tire Corporation (Denman), Goodyear, Michelin, Pirelli, Specialty Tires of

America, Inc. (Specialty), Toyo Tire & Rubber Co. (Toyo), and Yokohama; Denman and Specialty were not multinationals. See Chung et al.

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imports from the rest of the world amounted to $4.8 billion in 2008. Exhibit 5 relates employment in the tire
industry to overall employment in manufacturing.

The Tariff Decision

The United Steelworkers filed for protection under the US Trade Act of 1974, which stipulated the
conditions for tariff applications and defined who could apply.15 Sections 201 and 421 dealt with a specific form
of protection, often referred to as safeguards. Section 201 (global safeguards) targeted a surge in imports that
had given rise to “serious” injury, or the threat thereof. Set to expire in 2013, Section 421 was called the China
safeguard, as applying it hinged upon whether China’s imports caused “material” injury to the domestic
industry. The United States had added Section 421 as part of a bilateral agreement for supporting China’s
entrance into the WTO in 2001. Section 421 was discriminatory, as any proposed safeguard measure would
apply only to China—not to all imports, as with the global safeguards. “Material” also was a lower hurdle than
“serious” injury, and there was no mention that imports had to be the most important cause of injury.

Obama’s tire tariffs action was the first time the China safeguard provision was invoked to rationalize
protection against imports. The safeguard tariffs were a special case of temporary trade barrier (TTB), a class
that had become increasingly popular at the time. TTBs were imposed (1) for a limited time, and (2) on specific
imports from particular countries or companies. The most important TTB measures were antidumping tariffs.
These were retaliatory tariffs (countervailing duties) that were justified under WTO rules when countries were
found to export goods at lower than fair value, which was either the price charged in the market of the exporting
country or, in the absence of a market price, the (estimated) production cost. The China safeguard, however,
was not an antidumping measure. No determination was needed that China was competing unfairly, or selling
its goods at lower than fair value.16 The president had a level of discretion that he did not have in antidumping
cases, which were handled without his input by the International Trade Commission (ITC, an independent
government agency), the United States Department of Commerce, and the WTO. 17

On June 29, the ITC agreed in a 4-to-2 vote that Chinese tire imports disrupted the $1.7 billion tire market.18
The majority recommended a 55% additional tariff, to be gradually reduced to 35% in the third year. The two
dissenting voices considered tires “an industry in which the trend toward gradual downsizing appears likely to
continue regardless of the Commission’s action today.”19 They also urged the US government to provide
economic adjustment assistance to displaced tire workers. The president sided with the ITC and imposed 35%
safeguard tariffs, effective September 26 and to be charged on top of the regular most favored nation (MFN)
tariffs (see Exhibit 6). The safeguard would be gradually lowered until it expired in the third quarter of 2012.
President Bush had received four similar recommendations from the ITC (the last one on steel pipe in 2005).
He had rejected all of them.20

15 This section on the US Trade Act draws on Chung et al.

16 Levy.
17 Levy.
18 “USITC Announces Remedy Proposals in Its China Safeguard Investigation Involving Imports of Certain Passenger and Light Truck Tires from

China,” US International Trade Commission press release, June 29, 2009, https://www.usitc.gov/press_room/news_release/2009/er0629gg1.htm
(accessed Mar. 22, 2018).
19 https://www.usitc.gov/press_room/news_release/2009/er0629gg1.htm.
20 Andrews.

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The Players

President Obama was walking a fine line with his safeguards against Chinese tires. In the wake of the
financial crisis and the Great Recession, unemployment was approaching 10%. Concerns about American jobs
took center stage.21 Moreover, Obama wanted to overhaul the country’s health care, and he needed the support
of the progressive part of the Democratic Party, including the labor unions who had actively campaigned for
him in 2007.22 Trade with China was not popular with the Democratic base. China exported goods worth
almost $300 billion to the United States; the United States, in turn, sent about $70 billion in goods to China.23
Both presidential candidates, John McCain and Barack Obama, had urged a tougher stance on China. At the
same time, President Obama did not want to upset the Chinese, especially as China held more than $1 trillion
in US government debt, which kept rising with the mounting budget deficits; the 2009 budget deficit would
reach around 10% of GDP.

China was less than thrilled with the safeguard tariffs. Mary Xu, deputy secretary general of the China
Rubber Industry Association, argued strongly against them. Moreover, she wondered whether they would be
effective: “US tire makers will not shift production back to the United States because they have their strategy.
They want to produce high-profit tires in the United States and produce economy tires in China so even if the
United States closes the borders…they cannot add more jobs.”24

Just after the tire announcement in Washington, China’s Ministry of Commerce let it be known that China
would investigate whether “certain imported automotive products and certain chicken meat products” from
the United States were subsidized or dumped on the Chinese market. If confirmed, this would trigger
antidumping tariffs “based on the laws of our country and World Trade Organization rules.”25 One could argue
that the order of magnitude of the value of automotive products and chicken exported to China was comparable
to the value of US imports from China. It was perhaps no coincidence that China targeted the poultry industry
and automobile sector, two industries with interests in China. General Motors was the second-largest car
company in China, and the company depended on car sales by its Chinese subsidiaries. The poultry industry
found feeding China’s large and growing population an attractive proposition. China called the US decision
discriminatory but did not manage to have the WTO side with it.26

The US Tire Industry Association (TIA) seemed to agree with the China Rubber Industry Association’s
assertion that it was more interested in producing high-end tires.27 As a matter of fact, the TIA did not back
the petition filed by the United Steelworkers, arguing that manufacturers would relocate plants to other low-
wage countries.28

21 Stelzer; Bureau of Labor Statistics.

22 Andrews.
23 US Census Bureau, “Foreign Trade: Trade in Goods with China,” https://www.census.gov/foreign-trade/balance/c5700.html (accessed Mar. 22,

2018).
24 Shin.
25 Keith Bradsher, “China Moves to Retaliate Against U.S. Tire Tariff,” New York Times, September 13, 2009.
26 https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2014/June/Trade-Enforcement%E2%80%93Leveling-the-Playing-Field-for-

US-Workers-and-Employers
27 Domestic producers focused on higher- and medium-quality tires since the 1990s; see Chung et al.
28 Levy. In previous cases, George W. Bush had made a similar argument. Goodyear’s annual report for 2009 did not even mention the tire tariffs.

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Questions

1. What effects do you expect the tariffs will have on tire imports, prices, and production of US tires?
(Hint: use traditional tools of welfare analysis, which include consumer and producer surplus.)
2. What effects from the tariffs do you expect in terms of employment in the tire industry and beyond?
3. Discuss the various positions of the stakeholders and rationalize them. What is the political economy
of providing protection to certain industries?
4. Trade specialists such as Doug Irwin from Dartmouth have argued that the types of actions that we
saw with regard to tires were, indirectly, a result of the political necessity to maintain public support
for an open world-trading system. What is meant here? Do you agree?29

29 Don Lee, “Limited Success of Chinese Tire Tariffs Shows Why Donald Trump’s Trade Prescription May Not Work,” Los Angeles Times, July 24,

2016.

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Exhibit 1
Tariffs on Tires (A)
Top 20 Global Tire Companies (2009 Ranking)
(in billions of dollars, 2008 sales)

Ranking Company Headquarters Sales

1 Bridgestone Japan 23.4
2 Michelin France 22.8
3 Goodyear United States 18.5
4 Continental Germany 8.1
5 Pirelli Italy 6
6 Sumitomo Japan 4.8
7 Yokohama Japan 4
8 Hankook South Korea 3.7
9 Cooper United States 2.9
10 Kumho South Korea 2.6
11 Maxxis Taiwan 2.5
12 Toyo Japan 2.4
13 Hangshou China 2.1
14 GITI Singapore 1.9
15 Triangle China 1.8
16 Shandong China 1.5
17 Nokian Finland 1.4
18 MRF India 1.2
19 Double Coin China 1.1
20 Apollo Tyres India 1
Data source: “2009 Global Tire Company Rankings,” Rubber & Plastics News, August 1, 2009.

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Exhibit 2
Tariffs on Tires (A)
Value of Top 10 Exports in Safeguard Tires 3 Years before Safeguard Applied
(in millions of dollars)

Value
Exporting Country Export
Thailand 418
Indonesia 489
Mexico 764
South Korea 1,941
United Kingdom 103
Taiwan 396
Germany 580
Canada 3,481
Costa Rica 256
Brazil 672
Data source: Sunghoon Chung, Joonhyung Lee, and Thomas Osang, “Did China
Tire Safeguard Save U.S. Workers?,” European Economic Review 85 (2016): 22–38.

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Exhibit 3
Tariffs on Tires (A)
Employment and Imports from China in the Tire Industry (1998–2008, 3rd quarter)
(employment in thousands of people; imports in millions of dollars)

500
80

400
70

Imp. Value (unit: million $)

300
60

200
50

100
40

0
1998q2 1999q3 2000q4 2002q1 2003q2 2004q3 2005q4 2007q1 2008q2 2009q3 2010q4 2012q1

Yr & Qr

Empl. in the U.S. Tire Industry

Imp. of Tariffed Chinese Tires

Source: Created by authors using data from Chung et al.

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Exhibit 4
Tariffs on Tires (A)
Trends in US Tire Imports (2001 1st quarter–2009 3rd quarter)
1500
1000
500
0

2001q1 2002q2 2003q3 2004q4 2006q1 2007q2 2008q3 2009q4 2011q1 2012q2

Yr & Qr

Tariffed Subject Tires from China Non-tariffed Tires from China

Tariffed Subject Tires from RoW Non-tariffed Tires from RoW

Source: Created by authors using data from Chung et al., Fig. 7.

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Exhibit 5
Tariffs on Tires (A)
Employment in Tire Sector and Overall Manufacturing
(percent difference in employment in 2001–12, compared to 3rd quarter of 2009)
.5
.4
.3
.2
.1
0

2001q1 2002q2 2003q3 2004q4 2006q1 2007q2 2008q3 2009q4 2011q1 2012q2

Yr & Qr

Agg. Manufacturing Tire Industry

Source: Created by authors using data from Chung et al.

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Exhibit 6
Tariffs on Tires (A)
Ad Valorem Tariffs on Imports from China (in percent)

New tariffs after safeguard**

Article Tariff before* Year 1 Year 2 Year 3
New rubber pneumatic tires
For cars
- Radial tires 4 39 34 29
- Other tires 3.4 38.4 33.3 28.4
For buses or trucks
- Radial tires
On highway, light trucks 4 39 34 29
- Other tires
On highway, light trucks 3.4 38.4 33.4 28.4

Note: * most favored nation tariffs applicable before safeguard

** safeguard plus initial tariff

Source: Created by authors using data from Gary Clyde Hufbauer and Sean Lowry, “US Tire Tariffs: Saving Few
Jobs at High Cost,” Policy Brief 12-9, Peterson Institute for International Economics, April 2012, p. 2, Box 1.

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