Tariffs Bring Uncertainty and Woe

SEMA News—March 2019


By Stuart Gosswein

Tariffs Bring Uncertainty and Woe

U.S.-imposed tariffs are increasing supply costs for many SEMA members and causing disruption to the supply chain.

Every business depends on predictable supply costs. When it comes to that basic entrepreneurial principle, 2018 was not a good year. The Trump administration imposed a series of tariffs with little warning. Those measures were intended to address unfair trade practices and encourage foreign nations to renegotiate trade pacts to remove or equalize duty rates. Unfortunately, it hasn’t exactly worked out that way. Make no mistake, SEMA supports equitable trade but questions the methods being employed to bring other countries to the bargaining table. The results to date have been modest when compared to the upheaval being caused in the marketplace.

It’s unclear how or when trade tensions will be resolved. That’s a problem, because businesses need certainty. As this article was being written, it was unknown whether U.S./Chinese negotiations will result in tariffs being removed or increased on March 1 or whether President Trump will impose tariffs on imported automobiles and auto parts as a result of a U.S. Department of Commerce investigation. What can be said with certainty is that few if any companies budgeted for tariffs in 2018.

Tariffs have traditionally been considered a last resort in trade battles. There are many other mechanisms that can be employed first, such as filing product dumping and foreign subsidy actions or pursuing emergency import safeguard protections. Sanctions can be imposed to address counterfeiting and other intellectual property disputes. Our international trading partners can also collaborate to work collectively to contest unfair trade practices.

The tariffs being imposed are impacting most SEMA members directly or indirectly through their supply chains. Some members may welcome certain tariffs, such as those imposed on Chinese products that compete with products made in the United States. However, if they use domestic steel or aluminum to produce their goods, prices for those commodities skyrocketed when the metal tariffs were imposed.

Tariffs are a sledgehammer approach with unintended consequences. Once imposed, they become difficult to withdraw as other countries pursue retaliatory measures. In fact, tariffs may ultimately make U.S. manufacturers less competitive in a global economy, which has been reflected by the growing trade imbalance in 2018 as tariffs have been both implemented and increased.

One of the desired results of the Trump administration tariffs is to coax companies to produce their products in the U.S. in order to create high-paying jobs domestically. When looking at how to increase American manufacturing, it’s important to understand that a decline in the number of U.S. jobs in that sector over the past few decades is largely the result of increased productivity, automation, and U.S. companies availing themselves of efficiencies created by the global supply chain.

After World War II, countries were encouraged to abandon protectionist trade policies and work within a rules-based open trading system. Although globalization has created problems that need to be addressed, it has generally produced widespread benefits ranging from more prosperity and lower prices to greater consumer choice and an easing of international tensions.

Companies are now scrambling to address the impact of unexpected and significant tariffs on their supply chains. Some businesses are revisiting whether it is possible to source supplies domestically or from countries not subject to tariffs. Uncertainty clouds those decisions, since domestic sources may be unavailable or not price competitive. Further, the threat remains that the Trump administration may impose tariffs on auto parts from the newly sourced countries.

Stockpiling and hoarding are direct side effects of the tariffs. Companies have been amassing inventory to avoid threatened higher tariffs. Stockpiling has resulted in warehouse storage costs, a higher national trade deficit and, with respect to steel and aluminum, artificial price spikes.

Companies ultimately face the decision of how to pay for the tariffs, which are essentially a tax collected by the U.S. government. Choices include absorbing the costs, raising product prices, renegotiating supplier contracts, resourcing supplies, reducing spending in other areas to offset costs, and laying off workers.

SEMA has joined forces with many other industry organizations in urging the Trump administration and the U.S. Congress to abandon unilateral tariffs as a tool for resolving trade disputes. We will keep you informed on progress to address those issues.

  The Tariffs
  There are currently two trade actions spurring tariffs on imported goods, and a third is in the works.
Metal Tariffs: Last spring, tariffs were imposed on imports of steel (25%) and aluminum (10%) from every nation except a few countries that negotiated quotas (Argentina, Australia, Brazil and South Korea).
Chinese Tariffs: Last summer, President Trump targeted Chinese imports, imposing 25% tariffs on $50 billion worth of Chinese products, including some metal, rubber and plastic parts for auto equipment. In September, 10% tariffs were imposed on another $200 billion worth of Chinese products, including many auto parts ranging from engines to tires, gaskets and suspension components. The tariffs will increase to 25% on March 1 if the trade dispute between the two nations has not been resolved. President Trump has also threatened to impose 25% tariffs on the remaining $267 billion worth of Chinese imports.
Auto/Auto Parts Tariffs: Last summer, the President directed the U.S. Department of Commerce to investigate whether to impose tariffs on imported automobiles and auto parts if it is found that they pose a threat to America’s national security. A finding is due by mid-February. Global tariffs of 20–25% could be imposed on all types of cars and parts, including new cars, classic cars, OEM parts and specialty auto parts.


  SEMA PAC President’s Club Spotlight: Alise Miner

Alise MinerAlise Miner is the vice president of internal systems and project teams at SEMA. Miner joined the SEMA PAC President’s Club in 2011.

“As a lifelong race enthusiast, I value and support the SEMA PAC,” Miner said. “There are countless legislative issues that impact the automotive industry, and knowing that the PAC is actively monitoring and guiding the industry gives me great peace of mind. With my supply-chain background, I’m well aware of how susceptible businesses could be to the world’s ever-changing technology. I’m comforted in knowing that the SEMA PAC is advocating on behalf of the industry and future generations.”

SEMA PAC helps you keep pace by supporting the candidates and lawmakers in Washington, D.C., who understand the importance of what SEMA members do. For more information on SEMA PAC, contact Christian Robinson at 202-794-8279 or by email at christianr@sema.org.


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