Trade protectionism is on the rise. On June 24, 2021, the U.S. Department of Commerce, after a final hearing, announced the imposition of antidumping duty (AD) and counter-vailing duties (CVD) on passenger vehicle tires (HS4011.10) and light truck tires (HS4011.20.1005 and HS4011.20.5010) from South Korea, Taiwan, Thailand and Vietnam. This decision came following an investigation that found that tires imported from the aforementioned four countries are priced below fair market prices in the U.S., while Vietnamese tires are also subsidized by the government with low prices, causing damages to U.S. auto production. Consequently, implementation will be announced in early July 2021 after the International Trade Commission (ITC) votes on AD/CVD rates.
According to the final ruling, the U.S. AD/CVD rates imposed on Thailand are to be increased from 13.25-98.44% in the preliminary ruling on December 30, 2020, which is very high compared to overall increases in most rates, to 14.62-101.84% (from the preliminary ruling of 13.25-22.21%). Among the exporters affected, Taiwan will have the highest AD rates (20.01-101.84%), followed by South Korea (14.72-27.05%) and Vietnam (0-22.27%), while other countries have CVD rates of 6.23-7.89%.
Since 2009, the United States has implemented AD/CVD measures on passenger car tires and light truck tires to protect domestic companies from foreign competitors, especially Chinese imports. At that time, U.S. companies called for an investigation into tires imported from China, which was an efficient low-cost tire production base delivering products that could be sold at more competitive prices than other producing countries, thus directly affecting U.S. companies.
Finally, the United States imposed additional protection measures under Section 421 of the Trade Act of 1974 on passenger car tires and light truck tires imported from China for up to three years. From 2009 to 2012, the proportion of such tires imported from China to the United States dropped from 25.3% to 20.2%. A similar drop took place following the end of the protection measures, prompting U.S. companies to renew their calls for an investigation into tire imports from China. In 2015, the United States announced AD/CVD measures under Section 701 and 731 of the Tariff Act of 1930, imposing rates of 14.35-100.77% on tires imported from China, which remain in effect today.
The long-standing U.S. trade protectionism set against China has prompted Chinese investors to invest in Thailand, which is now the largest source of U.S. tire imports due to its rubber resources. After the U.S. implemented protective measures against Chinese tires in 2009 along with subsequent AD/CVD measures, the U.S. began noticing Chinese tire manufacturers entering Thailand for investment in 2012 and starting to produce tires for export to the U.S. in 2014. At that time, the U.S. was the largest importer of Chinese tires; at that time, Chinese tires accounted for 27.4% of the U.S. passenger car tire and light truck tire imports, while Thailand was the fifth largest source of U.S. tire imports, accounting for only 6.3%. By 2020, however, Thailand had become the largest source of passenger car tire and light truck tire imports to the U.S., accounting for 23.1%, while imports from China accounted for only 2.3%, ranking tenth place.
However, the AD/CVD levied by the United States on imports of passenger car tires and light truck tires (HS4011.10 HS4011.20.1005 and HS4011.20.5010) this time highlights the U.S. trade protectionism against various countries. At a deeper level, the U.S. aims to hamper Chinese tires that have production bases in other countries, especially Thailand, and imports of tires from other competitors such as South Korea, Taiwan and Vietnam. The total imports from these four countries accounted for 43% of the total U.S. passenger car tire and light truck tire imports, of which Thailand accounted for up to 22%, followed by South Korea 11%, Vietnam 5.7% and Taiwan 4.9%. In addition, the anti-dumping findings by U.S. government also set AD rates to make selling prices fairer to U.S. companies, resulting in the highest AD rates for Chinese companies in Thailand at 21.09%, followed by for Japanese companies in Thailand at 14.62% and other enterprises from other countries/regions in Thailand at 17.08%.
The U.S. demand for tire imports from countries subject to AD/CVD, including Thailand, has also begun to show signs of slowing. U.S. importers must temporarily pay AD on tires imported from these four countries, as a result of the ITC preliminary findings released on December 30, 2020. In the first four months of 2021, the import value of passenger car tires and light truck tires in the United States increased by 6.4% YOY. Among the imports affected, the import value from Taiwan, which was subject to the highest duty rates, shrank sharply by 44.6% YOY, followed by imports from South Korea which contracted by 24.9%, and imports from Thailand which contracted by 16.4%. However, U.S. tire imports from Vietnam rose by 11.4 % YOY due to lower duty rates, while imports from other source countries that were not subject to AD/CVD also rose sharply.
Based on this situation, KResearch believes that the U.S. will continue to protect domestic enterprises through trade protectionism measures under the WTO framework. Although Thailand is not a major target of the U.S., as a country largely dependent on foreign investment, Thailand still risks losing tire investment, because the U.S. AD/CVDs make Thailand’s exports to the U.S. more expensive than those of other countries that have not been subjected to AD duties. In addition, other Thai exports may fall into the same situation in the future, as both the U.S. and China are vying for dominant technologies in the global market, such as electronics, appliances and automobiles.
The U.S. AD/CVD measures against passenger car tires and light truck tires have put more competitive pressure on Thai-made tires. In the short term, Thailand still has the advantage of being a source of quality raw materials, as well as boasting expertise in automotive and tire production that is unmatched by its ASEAN competitors; thus, existing investment can still be maintained, reducing the risk of investors shifting production bases from Thailand to countries such as Indonesia not yet affected by trade protectionism. Although Indonesia is currently an important import source of passenger car tires and light truck tires to the U.S., accounting for 7% of U.S. passenger car and light truck tire imports, Indonesia still has limitations in terms of production technology and production capacity. In the medium to long term, if the U.S. continues to impose AD/CVD on Thailand and if Thai competitors such as Indonesia continue to be more cost-effective and productive, there is an increased risk that investors will shift production bases from Thailand to Indonesia, or possibly to Mexico or Canada, which are also important sources of tire imports to the U.S. with a combined import share of 21%, which is similar to Thailand’s share. In addition, Mexico and Canada receive import duty relief under the United States-Mexico-Canada Agreement (USMCA), and a production network of leading companies is located in the region.
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