The developing dispute over US tariffs of Chinese-made tires is likely to drive prices higher for Americans as Chinese tire producers appeal for a collective price hike to soften the blow from the recently approved tax.

Chinese tire exporters are also urging the government to offer higher tax rebates, said Zhou Zhiyong, general manager of China's largest tire exporter Guangzhou Huanan Rubber Tire Co Ltd.

"Chinese tire producers have reached a consensus that we are going to raise the price on tire exports to the US by large margins," Zhou told Guangzhou Daily. He added that the move would make American consumers feel the pain caused by the new tariff.

Zhou's tone may sound retaliatory, but according to Zhang Zhichao, analyst of the rubber industry with China International Futures Co, Chinese tire producers are in a dire need to raise prices to keep their businesses profitable after the tariff takes effect.

"The rising rubber prices in the international market as well as the new tariff would greatly lower (Chinese tire producers') profit margin, so they need this price hike even though that may lead to a drop in sales in the US market," Zhang said.

Wang Guomei, director of overseas marketing for Shandong Linglong Rubber Co Ltd, sold her company's low-end tires for $30 to US importers. She said prices will jump to $40 when the tariff is raised to 35 percent.

Many tire companies have begun exploring markets outside the US and a rise in tire prices would help generate more profit from those markets, Wang said. Giti Tire China, which generates $800 million a year from exports to the US, has shifted focus to the domestic market as well as to Europe, Southeast Asia, South America and Africa, according to Shen Weijia, company executive director.

"Recovering sales in the US and the high retail sales growth in China in the past eight months have provided support for a higher price," Zhang said.

US retail sales in August increased by 2.7 percent from a year earlier, exceeding economists' forecasts and increasing speculation that a recovery in the world's largest economy will swell demand.

In addition, China may sell its tires to countries like India, Japan, South Korea and Germany, who are likely to supplant China as the low-end tire suppliers to the US market, said Zhang.

Chinese imports come at the lower end of the price spectrum, where US producers have little interest in, or capacity for, making substitutes for the Chinese imports. More likely, their demand would be satisfied by imports from other countries who offer low-end, low-priced tires.

According to Wang, her company has been operating under full capacity since June, as overseas tire wholesalers are seeing the period before the imposition of the new tariff as a golden time to stockpile cheap Chinese tires.

"Our order could keep us working 24 hours a day till October," Wang said.

The Chinese Rubber Industry Association has submitted seven proposals to the Ministry of Commerce and Ministry of Industry and Information Technology, urging the government to increase tax rebates, reduce export tariffs and to buy more domestically made tires to offset the negative effect of the tariffs, according to a report on the People's Daily website yesterday.

(China Daily September 17, 2009)