Tariffs Already Disrupting Business for Auto Parts Suppliers

Auto parts represent a massive portion of Chinese-sourced goods – goods that are now under tariff. At the end of September, the Trump administration began to impose Section 301 tariffs on billions of dollars of Chinese-sourced auto-parts. This initial 10 percent duty will increase to 25 percent in just a few months (January 1, 2019).

This decision impacts thousands of companies and hundreds of thousands of American jobs. It will also have a tremendous negative affect on the global supply chain that supports a huge industry. The steep import duties will affect everything from shipping lanes to the local auto repair shops – and the changes don’t stop there.

An additional 25 percent tariff on imported vehicles and auto parts is also being examined. The Trump administration is also considering duties on all Chinese imports that have so far avoided tariffs. Far from the first industry to be affected, these Section 232 tariffs are similar to the duties levied on steel and aluminum earlier this year.

The biggest question, thus far, has been the supply chain. Aaron Lowe, senior vice president of regulatory and government affairs at the Auto Care Association, the trade group that represents the aftermarket auto parts industry, says some auto parts suppliers have already been affected.

Lowe explained when a shipment left China for one importer of cabin air filters, there were no extraordinary duties. However, when it reached the U.S., the tariffs had already gone into effect. The result? It 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,” says Aaron Lowe.

As companies scramble to keep up with the changes, cash flow has become an issue for many auto parts importers. The cost of shipping a container from China to the US has doubled since the end of April, as demand for space on container lines skyrocketed. The new tariffs are costing Mercedes Benz about $1 million a month, according to Austin Ramirez, the company’s president and CEO.

Already considered a “high risk” industry, it will be even more difficult for auto parts companies to find financing and payment processing. Many companies are turning to an automotive merchant account for a solution.

For now, the future for the industry remains unclear. Ramirez says that there is now “an incentive not to manufacture products in the U.S. that require Chinese supplied content.” He also feels that if these tariffs remain in place long-term, jobs will likely move outside the U.S. to non-Chinese countries.

Author Bio: As the FAM account executive, Michael Hollis has funded millions by using automotive merchant account solutions. His experience and extensive knowledge of the industry has made him finance expert at First American Merchant.