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Escalating tit-for-tat trade war tariffs applying pricing pressure to global aftermarket suppliers

Thursday, August 2, 2018 - 07:00
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Reflecting on a worldwide network of intertwined supply chains and sales channels, aftermarket executives are assessing both the direct impacts and collateral damage of President Donald Trump’s tariff-induced trade war salvos being directed at friends and foes alike.

Under America’s Section 232 national security codes a U.S. Department of Commerce investigation has also been implemented, delving into how the entire international automotive industry relates to the country’s domestic economic interests.

“We must put American workers first,” says Trump in justifying the tariffs, emphasizing a long-held belief that other nations are taking unfair advantage of us– as in the U.S. Yet he appears to be steadfastly disregarding the nature of the nation’s reliance on global trade avenues.

A barrage of personal insults accompanied by tariffs of 25 percent on steel and 10 percent on aluminum imposed against our G-7 Summit allies – Canada, France, the United Kingdom, Germany, Japan and Italy – along with the 28 countries comprising the European Union, plus Mexico, have resulted in tit-for-tat talk of retaliatory tariffs from the aggrieved governments.

China, too, is engaged in an exchange of financial fusillades with the United States.

“There are too many variables right now to accurately assess the ramifications, but they do range from minimal to punitive and destructive,” according to Aaron Lowe, senior vice president of regulatory and government affairs at the Auto Care Association. “The Administration does not appear to be interested in slowing down its confrontational approach to our allies. It is unclear at this point whether this strategy will benefit U.S. companies or result in a trade war that could have negative implications for the global economy. There will be companies that will be directly impacted by the tariffs that the President has imposed on China and may impose as a direct result of the Section 232 automotive and auto parts investigation.”

Results of the far-reaching Dept. of Commerce probe are not due until February 2019.

“We are also concerned about the impact of any retaliatory tariffs that might be imposed by our allies or China,” says Lowe. “Further, it is hard to think of any automotive parts that will not ultimately be impacted by higher steel and aluminum prices as the global market reacts to the 232 tariffs. We are struggling to understand the national security implications of the auto and auto parts trade with some of our strongest allies,” he elaborates. “Until we have more details as to what products will be covered it is very difficult to know the repercussions from this action. However, looking at the possibility of higher car and parts prices, there is little positive that can be found in this action and there is the potential for significant negative economic impacts both on our members and their customers – the motoring public.”

Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, said, “Considering the high integration of the auto industry across Canada, Mexico and the United States, the imposition of these tariffs will undermine our global competitiveness and have disruptive consequences for the thousands of jobs the supply chain supports in all three countries. It is disappointing to see close allies and partners imposing tariffs on each other, as that can only increase prices within our highly integrated economies. It is our hope that the North American governments will quickly find a positive trade resolution that does not penalize our shared customers.”

An escalating trade war could inflict collateral damage that may not be readily apparent on the homefront. A National Public Radio profile of a Pennsylvania mill worker who admires Trump’s shoot-from-the-lip style and approves of tariffs revealed some static as he realized that the imported steel slabs his employer converts into sheet-coils sold to producers of vehicles and pipes are now 25 percent more expensive, and the company’s business plan may no longer be sustainable. “Wait a minute,” exclaimed the Trump-favoring worker: “Timeout!”

Noting that “Trump’s proposed auto tariffs would throw U.S. automakers and workers under the bus,” the Washington, D.C.-based Peterson Institute for International Economics (PIIE) predicts that if the Administration were to ultimately follow through with a 25 percent tariff on all automotive imports – including parts along with completed cars, SUVs, vans and trucks – domestic production would fall 1.5 percent and cause 195,000 American workers to lose their jobs, shedding 1.9 percent of the industry’s labor force.

“It’s easy to get caught up in the recent whirlwind of trade policy developments in Washington and lose sight of the bigger economic picture and what it all really means for our country,” says J.D. Harrison, executive director for strategic communications at the U.S. Chamber of Commerce. “One day it’s new tariffs on a given product or country, the next it’s retaliatory tariffs from one of our trading partners, and the next it might be a promising breakthrough or a crippling step backwards on NAFTA negotiations.”

Citing the chamber’s own compilations of available analyses, Harrision reports that upwards of 624,000 American jobs could be at risk under an expanded automotive tariffs scenario: “The move would hobble our nation’s car manufacturers and auto parts businesses – many of which are small businesses – cutting their expected production by 4 percent and wiping out 5 percent of their labor force.”

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