MEMA: Auto supply chain at serious risk from more China tariffs

WASHINGTON—The U.S. government's latest proposed 25 percent tariffs on imports from China, coupled with earlier tariff rounds, risk causing serious economic harm to the auto supply chain, an auto industry trade association told a government hearing June 21.

Ann Wilson, senior vice president of government affairs with the Motor & Equipment Manufacturers Association, told the U.S. Trade Representative's hearing that tariffs are particularly harmful to lower-tier components makers.

She added that companies are delaying investment, and she warned of bankruptcies.

"We have been contacted by what we call Tier 2 and Tier 3 suppliers, often the major employers in small communities across the country, with concerns about the large scale 25 percent tariffs moving profitable companies into the red and precipitating bankruptcies and posing other threats," Wilson said.

She told a panel of government officials at the fact-finding hearing that companies are worried about the "compound effect" of the latest round of tariffs—25 percent on $300 billion in Chinese imports—along with the steel and aluminum tariffs, earlier China tariffs, uncertainty over whether the new U.S.-Mexico-Canada Agreement will pass and the "real potential" for more tariffs on imported cars and parts.

"I know I've talked to you many, many times—and you're probably sick of seeing me and other people like me (talking) about this—but I cannot reiterate enough: We have 1,000 member companies, I talk to CEOs all the time (and) these kinds of tariffs are going to affect the cost to consumers," she said. "It's going to effect and it is affecting jobs right now. Our companies are not filling open jobs."

"Make no mistake about it, these proposed tariffs are a tax on the American public," Wilson said.

She said that global companies in the auto component supply chain are constantly evaluating whether to put investment in the United States, Europe and Asia.

"If they know their investment has a long term opportunity to make good in one of those other two areas, they will do it," Wilson said. "And this country will suffer from this. We may not see it immediately, but we will suffer from it. And it's happening right now."

In a brief interview after her testimony, she said that global auto systems makers can more easily shift production to other places in the world, if U.S. costs get too high.

But she said smaller, Tier 2 and Tier 3 auto components firms with their production more focused in the U.S. could face bigger challenges.

"It is really hurting them because they don't have as much room to pivot," he said. "If you're a global company, and it's more expensive in the U.S., you might find another place to do some of your manufacturing. But if you've only got two locations, and they're in the U.S., where are you going to move it to?"

She testified that China is a much smaller source of imported U.S. auto components and parts than Mexico. Even so, she said there's some evidence that production is being moved out of China to other locations, especially Mexico.

But she said difficulties shipping goods over the U.S.-Mexico border in the last few months are raising questions about that strategy. In April President Trump threatened to close the border, including to commerce, to force steep reductions in immigration and pressure the Mexican government.

"Our industry has seen reshoring of some of that manufacturing, particularly to Mexico. but this has proved to be very problematic," she said. "We saw significant concerns among our members about the long term viability of continuing to bring components from Mexico into the U.S.

"About 2 months ago, we had a significant slowdown in the border to Mexico and the U.S. as far as being able to bring that in," she said. "So that rush to reshore into Mexico has slowed down tremendously."

In its written testimony, Washington-based MEMA said it strongly supported the goals of the Trump administration's China trade policy such as challenging weak intellectual property enforcement and requirements for technology transfer. But it favored a "more measured" approach to achieve those goals.

But groups like the Alliance for American Manufacturing told the USTR panel that measured approaches amount to "endless dialogue," and said with the goods trade deficit with China hitting a record $419 billion in 2018, that won't result in meaningful changes.