The United States is set to increase tariffs from 10% to 25% on all Chinese auto parts imported into the country come the New Year, which experts predict will disrupt the supply chain.
Under Section 301 tariffs will be imposed on industries such as aerospace, information and communication technology, robotics, and machinery, according to the U.S. Trade Representative (USTR) website.
“President Trump announced in March that the United States will impose tariffs on approximately $50 billion worth of Chinese imports and take other actions in response to China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises,” read the post. “These policies bolster China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as ‘Made in China 2025.’”
It’s expected about 1,300 separate tariff lines are under review including auto parts. The USTR website states “the total value of imports subject to the tariff increase is commensurate with an economic analysis of the harm caused by China’s unreasonable technology transfer policies to the U.S. economy.”
The American Journal of Transportation (AJOT) noted the measure will disrupt supply chains. It used the example of a cabin air filter that left China with no extraordinary duties, yet by the time it arrived in the U.S. the tariffs had cost the company “a huge amount of money.”
“Probably the hugest uncertainty is how to build your supply chain because no one really knows how this will play out in the future or when these tariffs will begin or end,” said Aaron Lowe to AJOT. Lowe is the senior vice president of regulatory and government affairs at the Auto Care Association in the U.S., the trade group that represents the aftermarket auto parts industry.
Last year, the U.S. imported almost $13 billion worth of Chinese auto parts, although not all are subject to the new duties.
It can take up to five months for a Chinese manufacturer to deliver an auto part from the moment the request is made to the shipment of it to the U.S.
Not only does it take months for auto parts to be produced and shipped but container shipping costs have doubled in Asia as demand surged. The increase is due to companies wanting to beat the Jan.1, 2019 deadline for tariffs on Chinese goods.
“There is a lot of disruption and product flow and how it comes in,” said Lowe. “I don’t know how you even plan for something like that because there’s so much uncertainty.”
According to the AJOT, vehicle manufacturers need up to five years to develop a single vendor that meets standards and capacity. Further, it can take up to five to 10 years to bring the auto parts industry back to America with investments totalling “hundreds of millions of dollars.” For the consumer this could double or triple costs.
“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,” said Steve Hughes, the president and CEO of Los Angeles-based HCS International.
In response to the tariffs, the Chinese government posted on its Canadian embassy’s website a statement calling for an end to the tariffs.
“There is no winner in fighting a trade war,” stated Foreign Ministry spokesperson Lu Kang, adding that as the United States increases tariffs on more exports from China, more American industries and localities will be inevitably impacted by China’s retaliatory measures.
The USTR has filed a request for consultations with the World Trade Organization over what it calls China’s discriminatory technology licensing requirements. If the United States and China are unable to reach a solution through consultations, the U.S. may request the establishment of a WTO dispute settlement panel to review the matter.