More industries are starting to feel the pain of the newest round of tariffs imposed by US President Donald Trump, with the latest being the auto parts industry.
On 24 September, the 10% tariff on approximately $200 billion worth of goods imposed under Trump’s direction included a large portion of automotive parts. On 1 January 2019, the tariffs will increase to 25%, according to a US Government statement. If China retaliates, the US will impose “phase three”, which will amount to tariffs on $267 billion worth of additional imports, according to the statement.
According to the research site, World’s Top Exports, China is the second top supplier of auto parts to the US following Mexico. The US imports $9.9 billion worth of auto parts from China annually, according to World’s Top Exports.
Supply chains are extremely intricate and take years and copious investment to achieve and fine-tune. There is a three-month window between the two imposed tariffs, which is sending vendors scrambling. As reported by the American Journal of Transportation (AJOT),
Steve Hughes, president and CEO of HCS International, a US-based automotive parts consulting firm, expressed his frustration at the timeline, “That the administration is giving our industry 90 days to change our supply chain before they institute a 25% tariff is absolutely and utterly ridiculous.”
Hughes explained it could take up to five years to establish a working relationship with a vendor. High standards, manufacturing expertise and the ability to produce at a particular capacity are all elements considered when finding a vendor, Hughes explained in the AJOT report. The time and monetary commitment to change vendors is high, and by the time the product reaches the consumer, the cost could be double or triple what it is now, he continued.
The Auto Care Association sent a letter to the US Trade Representative Office in September requesting the administration adopt a process for the Auto Care Association members and stakeholders to request exclusions for products on the list of tariffs. “Our members have built supply chains over the past two decades to develop products that meet a high standard of safety and quality while supporting the demand of the US aftermarket,” the letter stated. “Regarding brake rotors, reshoring the industry for 2600 different rotor parts could take up to 10 years and would require a significant financial investment to retool each individual part. We’re not even sure the casting foundries in the US have the capacity to support the demand.”
According to a letter written to the US House of Representatives, Americans for Free Trade joined with Farmers for Free Trade to support the “Tariffs Hurt the Heartland” campaign.. This coalition joins the US’s largest retail, manufacturing, technology and services trade organisations in a campaign against tariffs. “The continuous use of tariffs erodes market access for US manufacturers and threatens millions of good-paying jobs – including the 1.3 million equipment manufacturing jobs our industry supports,” Association of Equipment Manufacturers (AEM) President Dennis Slater said in a press release.
According to a trade briefing by the Center for Automotive Research, the 25% tariff could result in:
- 2 million fewer new vehicles sold per year
- US employment losses totalling nearly 714,700 and GDP losses of $59.2 billion
- An increase of $4,400 in the price of an average vehicle sold: $2270 for US-built cars and $6,875 for imported cars and trucks
- Increase in the cost of vehicle maintenance and repair