Asian markets: Obama's 35 percent tariff sends Chinese tire stocks plunging
Shares in Asia were mixed Monday with the Hang Seng down 1.1 percent to close at 20,932 and the Nikkei dropping 2.3 percent to end the day at 10,202. Only the China markets were in the green with the Shanghai Composite gaining 1.2 percent to close at 3,027.
The Chinese index might have gone higher, had it not been for Obama's decision on Friday to levy new trade tariffs on all Chinese-made car and light truck tires entering the U.S.
This news led to a steep sell-off in the Chinese tire sector with tire producer Double Coin Holdings, Ltd. plunging 10 percent - the maximum daily loss limit. Aeolus Tyre Co., the tiremaker with the largest market cap slumped 3.3 percent while Guizhou Tyre Co. Ltd. slid 6.7 percent and Giti Tire Corp. fell 4.9 percent.
According to White House press secretary Robert Gibbs, beginning September 26, tires imported from China will be hit with an additional 35 percent tariff in the first year, a 30 percent tariff in the second year and 25 percent in the third.
Last year more than 46 million Chinese tires were on the market in the U.S., and according to the Wall Street Journal, they made up almost 17 percent of all the tires sold in America. Major U.S. companies, like Cooper Tire & Rubber Co. (CTB), also produce tires in China, which are then sold in the U.S.
Consumers are bound to see price increases, as retailers scramble to source tires from other countries like Indonesia and Korea, which have only a fraction of the production capacity of manufacturing goliath China. The retail price differential between discount tires and premium tires in America is huge, with cheaper tires going for $50 to $60 each, and premium tires fetching as much as $200 to $250 apiece -- so it's unlikely that cash-strapped Americans will be happy if discount tire shortages occur.
The news also hurt rubber producers around Asia with Sri Trang Agro-Industry Plc, Thailand's largest publicly traded rubber producer, losing 4.1 percent. On a positive note, computer company Founder Technology jumped 10 percent in Chinese trading and electronics company Aisino Co., gained 6.6 percent.
In Hong Kong trading, clothing and toy supplier Li & Fung dropped 4.3 percent adding to its 3.3 percent drop on Friday. London-based HSBC Holdings Plc. lost .9 percent.
Japanese stocks were down across the board with automotive and electronics companies fairing particularly badly. Mazda Motor plummeted 5.1 percent and Nissan plunged 4.1, while Honda dropped 2.8 percent and Toyota receded 2.6 percent. In the electronics sector, Pioneer Corp plunged 5.9 percent, Toshiba Corp was also down 3.4 percent and Sanyo dropped 3.3 percent.
For a region already keeping a nervous eye on export figures, this new tire export tariff just doesn't help.