Episode 467: Tires, Taxes And The Grizz

Jun 22, 2013
Originally published on June 21, 2013 8:50 pm

The price of tires has risen by about 40 percent in the past five years. That's partly because rubber prices have gone up. But it's also due to a tariff the U.S. imposed on Chinese tire imports.

As tire prices have risen, more people have been renting tires rather than buying them outright. And renting tires, it turns out, is often a bad deal in the long run.

On today's show: How a celebrated attempt to help one group of people ended quietly hurting a much larger group. Also on the show: The Grizz.

For more, see our story Why More People Are Renting Tires. And see the paper we mention on the show, U.S. Tire Tariffs: Saving Few Jobs at High Cost. Music: Karmin's "I Told You So" Find us: Twitter/ Facebook/Spotify/ Tumblr. Download the Planet Money iPhone App.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

ZOE CHACE, HOST:

Tires - tires for your car have gotten very expensive. Anyone who's shopped for tires in the last couple years knows this.

SHANNON KELLY: Oh, I checked every place in town, and they were outrageous. It would be anywhere between four to five hundred to pay outright for that. And I just don't have that right now.

CHACE: I met Shannon Kelly (ph) at a tire shop in Ocala, Fla. It's near Disney World. Florida is a place where tires can be as necessary as a pair of shoes. And Shannon's here to replace the two back tires on her truck.

CAITLIN KENNEY, HOST:

The average price of a passenger tire has gone up about 40 percent over the last five years. That's according to a trade publication called Tire Business. And these higher prices, they've given rise to this new industry that barely existed before, tire rentals.

CHACE: Tire rentals - if you don't have the money to buy tires outright, you can rent them. That's what Shannon's doing.

KELLY: Well, it's awesome because I couldn't afford to go out and buy four new tires. What I was pricing was over - some places were over a thousand, some were, like, 900 for tires for that truck. So when I found this place, it was, like, heaven-sent because I can make monthly payments on them.

CHACE: This place is called Rent-N-Roll. The manager here is seeing more and more Shannon Kellys, people who can't afford tires up front, so they're renting instead. And renting is a bad deal. She will eventually own the tires, but if she just pays the minimum amount every week, it will take 18 months of weekly payments to get there. And she'll end up paying double what it would cost to buy them up front.

KENNEY: And if Shannon doesn't make her payments, the repo man could show up and take the tires back. She could come out of the store one day and find her car up on blocks.

CHACE: That's how expensive tires have gotten. More and more people are taking this deal. Part of it is that rubber has gotten more expensive. But Steve Sutton, the guy who runs the Rent-N-Roll, says there is another culprit for why tire prices are so high, the U.S. government.

STEVE SUTTON: Well, about four, five years ago they put a tariff on the Chinese tire.

KENNEY: A tariff is basically a tax on stuff coming in from another country. The U.S. government put a tariff on Chinese tires to try to limit the amount of Chinese tires coming into the U.S. The idea was less Chinese tires, people will buy more American tires. That's good for American jobs. That's good for the American economy.

SUTTON: Good idea. I think the result is not what they were looking for.

CHACE: Hello, and welcome to PLANET MONEY. I'm Zoe Chace.

KENNEY: And I'm Caitlin Kenney. Today on the show, how a celebrated attempt to help one group of people ended up secretly hurting a much larger group.

(SOUNDBITE OF SONG, "I TOLD YOU SO")

KARMIN: (Singing) I told you so. Don't want to brag, but you already know. Oh, I told you so. Don't want to brag, but you already know. You already know.

CHACE: When it comes to international trade, there's always a ton of rhetoric about being tough on China. President Obama in particular has been very proud of this one thing he did. He slapped this hefty tariff on Chinese passenger tires. He talked about it in his first State of the Union as a second-term president.

(SOUNDBITE OF STATE OF THE UNION)

PRES BARACK OBAMA: We've brought trade cases against China at nearly twice the rate as the last administration, and it's made a difference.

(APPLAUSE)

OBAMA: Over a thousand Americans are working today because we stopped a surge in Chinese tires.

(APPLAUSE)

KENNEY: And this is what presidents love to brag about. President Obama says, look, I took this dramatic action, and I saved an American industry.

CHACE: Turns out this thing he did, did not really do that. The tariff did maybe save some jobs, but the economic consequences for the rest of us were pretty bad. But before we get into that, first, how did we get this tariff?

KENNEY: Well, for years and years, we made lots of tires here in America. And then - well, I mean, this is a story you've heard before - but China came along. China said, hey, we can make tires. We can make tires that are just as good as yours, and we'll sell ours for cheaper. And it worked. Consumers in America started buying Chinese tires instead of American tires.

CHACE: Tom Conway is with the United Steelworkers. His job is to protect American tire workers. And he says all these tires coming from China threw the American tire industry into a tailspin.

TOM CONWAY: The volume of tires that came into the U.S. was millions and millions and millions of tires, to where it collapsed the pricing on this particular set of tires, which was passenger and light truck tires.

CHACE: Chinese tires were here, and American tire plants were closing.

CONWAY: We had plants in Oklahoma. We had plants in Tennessee. We had plants in Alabama. We had plants in plants in Texas that employed thousands of U.S. citizens making tires. It's not like you were going to take a 52-year-old guy and send him to Internet school.

CHACE: Naturally, Tom and the United Steelworkers want to stop what they think is an assault on their people, American tire workers. And he finds this unlikely ally in this fight, a person that guys like him are used to fighting with - a CEO, a boss, the guy on the other side of the table during union negotiations - the CEO of Titan Tires, a tire manufacturer in Illinois, a man who very recently had been the steelworkers' bitter enemy.

KENNEY: His name is Morry Taylor, and he's the CEO of Titan Tires. And he says he's the cause of one of the longest strikes in the history of the tire industry. He refused to give in to a fight with workers over overtime pay, living up to his notorious nickname, The Grizz.

MORRY TAYLOR: Now, you realize I'm The Grizz, and I set the longest strike ever in the rubber industry. And it was with the steelworkers.

CHACE: He's known as this pretty straight-talking, tell-you-like-it-is kind of guy. And he brags about how vicious the strike was, how he and this guy named Leo Gerard, the head of the steelworkers union at the time, butted heads, which makes it all the stranger that in our story they end up on the same side.

TAYLOR: So we had a battle, OK? And then what happened was the hill was all bloody. Everything was bad. And then Leo and me - and Leo's from Canada. So I called him my friendly miner from the communist mine, all right? But he's a real good guy. Leo's heart is for the working men. So after we got done, he decided that - you know, Morry, you're one tough SOB. And it's a [expletive] to turn around and deal with you. But you're for the working man and woman, too.

KENNEY: Even though they hated each other, the union and The Grizz realized they hated the new Chinese tires more. The steelworkers thought the Chinese were stealing their jobs. The Grizz thought the Chinese were stealing Titan Tires' business, his business. The two former enemies joined together to take down China.

CHACE: They started by asking Congress for help.

TAYLOR: I went and talked to a bunch of politicians, congressmen, senators, and they couldn't help you for diddly crap, OK?

CHACE: So they went to the International Trade Commission, the ITC. It's a government organization whose job it is to figure out if other countries are cheating in their trade deals to the U.S.

KENNEY: And the ITC agreed with Titan and the unions. They said what the Chinese were doing was wrong, and they punished them. They said, China, if you want to bring your tires into the U.S., it's going to cost you more.

CHACE: And The Grizz was satisfied, but the unions wanted more. They wanted it to cost a lot more for Chinese tires to come into the U.S. They felt the damage that had been done to their industry was so bad that China had effectively killed off a big chunk of the U.S. tire industry, that they wanted the most severe punishment that China could get, like a huge, big, fat tariff on passenger tires. And to their surprise, they got it. They got this tariff, 35 percent tax. So a Chinese tire that sold for a hundred bucks would now be $135 coming in. And it was shouted from the rooftops.

(SOUNDBITE OF SPEECH)

OBAMA: When Governor Romney said that stopping unfair surges in Chinese tires would be bad for America, bad for our workers, you know, we ignored his advice. And we got over a thousand Americans back to work creating tires right here in the United States of America.

(APPLAUSE)

GARY HUFBAUER: I cringe when I heard him say this. But President Obama, in his second campaign, was rather proud about this case of putting a tariff on tires.

KENNEY: Gary Hufbauer is an economist with the Peterson Institute. He did an analysis of the Chinese tire tariff, and he says there's nothing here to celebrate at all.

HUFBAUER: Maybe this tariff preserved about a thousand jobs. I think we said about 1,200 jobs - not a big number either in the tire industry, which is many thousands of jobs, or certainly in the U.S. economy, which is 140 million jobs.

CHACE: Hufbauer says there is someone who really benefited from the tariff. The tariff totally gave them a chance to shine. But it's not the person the tariff was intended to help. It's not the U.S. It's Korea.

HUFBAUER: They were the biggest single beneficiary. This is just amazing. It was taking money from American pockets and putting it in the hands of producers in foreign countries.

KENNEY: Now, the people who make tires in this world, it's not just the U.S. and China. Japan, Thailand, of course Korea, they all make the kind of low-end tires that China was selling to the U.S. So with China out of the way, Korea and these other countries, they moved in - Korea in particular. Their market share, the amount of tires they sell in the U.S., increased by 50 percent.

CHACE: So go ahead Korea. They got theirs. People who study this stuff are not surprised by the result. Economists, trade-policy people, they generally hate tariffs because they're inefficient. They end up costing society so much more than they benefit. They raise the price of a good, like tires, which ends up affecting everyone with a car.

KENNEY: Gary Hufbauer from the Peterson Institute did the math on this tire tariff. He said the total cost to consumers in higher tire prices was $1.1 billion spread out over everyone. That's the cost - 1.1 billion. The benefit, the thousand jobs that were saved, put $48 million in the pockets of tire workers - so the cost, 1.1 billion, 20 times the benefit.

CHACE: It would be way, way cheaper for the government to have directly paid the tire workers. That would have only cost us 48 million. Instead, we spent over a billion dollars to protect those jobs. Hufbauer says this is usually what happens with tariffs.

HUFBAUER: The benefits are highly concentrated on a few firms and maybe a few workers. And the cost could get spread around the whole economy. You know, if everybody in the United States would send me a dime - that's a pretty small amount of money, small change there - well, I'd get 30 billion because we have about 300 million people in this country. It would be highly concentrated on me. I'd be very happy. The cost would be very diffused, a dime out of your pocket. I'll give you my address. You could start mailing the money in.

KENNEY: The problem with something like this, it does disproportionately hurt people who have less money to spend, people who are counting the change in their pocket, people who can't really afford big-ticket items.

CHACE: The kind of people I met at the Rent-N-Roll, the tire rental business in Florida.

AARON: So your first payment, you want to pay biweekly. It's $44. It's a $10 disposal fee.

CHACE: Back at the Rent-N-Roll, Aaron (ph), one of the salesmen, is closing a deal with Lynn Warren (ph). He needs four new tires for his 10-year-old Honda.

LYNN WARREN: I can do it. I'm OK.

AARON: We have it in stock. So if that's something you want to do today, we can do it today.

CHACE: Lynn Warren, he's a manager at McDonald's. He can't afford his tires up front, so he came here to rent them.

WARREN: I understand that I'll probably end up paying a lot after I'm done paying for them. But right now I need the tires, so I better be safe than sorry.

KENNEY: This is why economists hate tariffs. They make goods like tires more expensive for everyone, and they don't really have that much of an impact on American manufacturing, certainly not the kind of impact people hope they'll have.

CHACE: The tariff was lifted at the end of last year without too much to show for itself. Chinese tires are back. We should see prices come down accordingly. The thing you'd hope politicians would learn from this tariff is that when you take a big, powerful policy tool like a tariff and you throw it in one direction, it's just going to bounce back and hit you right in the face from somewhere else.

(SOUNDBITE OF SONG, "I TOLD YOU SO")

KARMIN: (Singing) I knew it in my soul. I told you so. I don't want to brag, but you already know. Oh, I told you so. Don't want to brag, but you already know. You already know.

KENNEY: As always, we want to know what you thought of today's show. You can email us, planetmoney@npr.org. You can also find us on Facebook, Twitter, Spotify, tumblr. I'm Caitlin Kenney.

CHACE: Happy birthday, Caitlin.

KENNEY: It's tomorrow, but thank you.

CHACE: I'm Zoe Chace. Thanks for listening.

(SOUNDBITE OF SONG, "I TOLD YOU SO")

KARMIN: (Singing) I be racking up another million, making me another killing. Superwoman on the top dollar billing. Yeah, I muster up a lot of feelings. Tell me what you really think about it. Kidding. I don't even care. Nobody listens to a fools-gold-coated hater. Be a baller, not a traitor please. Had me on my knees. Talk to you later, na-na-na-na (ph). Whoop, there it go. Right all along. Yeah, I knew it in my soul. I told you so. Don't want to brag, but you already know. Oh. Transcript provided by NPR, Copyright NPR.