Author: Abhirup Roy
LAS VEGAS (Reuters) – Global auto suppliers are working on how much of their production they can move to or closer to the United States as a defense against tariffs promised by President-elect Donald Trump, according to industry leaders at CES in Las Vegas.
The auto industry has already experienced eight years of American protectionism, from actual and threatened tariffs during Trump’s first term, and then more tariffs and the American Inflation Reduction Act under President Joe Biden. Most of those measures were aimed squarely at China, particularly the Biden administration’s proposal to ban Chinese software and hardware from cars on American roads.
But Trump has promised to go much further, imposing a blanket tariff of 10% on global imports into the United States and a far higher 60% tariff on Chinese goods. In late November, he specifically promised a 25% tariff on imports from Canada and Mexico when he takes office on January 20.
Such high tariffs would be difficult to pass on to consumers and would make many auto parts produced in lower-cost markets uneconomic, or in the case of China, make it nearly impossible to sell the products in the US
“Anybody can do the math,” said Paul Thomas, president of North America Bosch (NS:), the world’s largest auto parts supplier, told Reuters. “If it’s 10%, 20%, 60% (tariffs) … you have to say, ‘OK, how many scenarios make sense for that and which are we going to act on?'”
“We’ve already started a few of them even before he (Trump) takes office.”
Speaking on the sidelines of the CES technology conference, Thomas gave a theoretical example of a generic electronic control unit that Bosch could currently produce in Malaysia or a similar market, but now “we intend to do it in Mexico or Brazil… areas where we already have a footprint,” he said is.
Bosch is waiting until Jan. 20 to see what actually happens before making any “significant decisions,” Thomas added, echoed by other suppliers and automakers.
During his first term, Trump used the threat of tariffs against specific countries or even individual automakers to encourage them to increase American production.
When Toyota (NYSE: ) announced plans to manufacture the Corolla sedan in Mexico for U.S. consumers in early 2017, Trump, now known as X, said on Twitter, “NO WAY! Build a factory in the U.S. or pay a big border tax.”
Within a year, Toyota instead announced a $1.6 billion joint plant in Alabama with Mazda, and Trump declared victory.
‘NOT. 1 GOAL’
Major suppliers have responded to US protectionism and massive supply chain shocks during the coronavirus pandemic by localizing production to avoid parts shortages or the risk of border taxes.
That process accelerated after the Biden administration went over to the IRA. The law was more carrot than stick, prompting a host of suppliers, including Britain’s Dowlais, to invest more in the US market as they pursued deals with automakers seeking subsidies for electric vehicles – even as the new Trump administration aims to dismantle parts of the IRA .
Nikolai Setzer, Continental’s chief executive, told Reuters that after years of localizing more production in each region it operates in to serve nearby customers, the German supplier is more “underexposed than the rest of the auto industry or our competitors”.
But Continental is talking to its North American suppliers about whether alternative local components are available for the parts so the company can avoid the tariffs. “Wherever we can localize further, and it makes sense, we will.”
Honda (NYSE:) production capacity in Mexico is about 200,000 vehicles per year, 80% of which are exported to the US market.
Speaking at a CES panel discussion, Honda Executive Vice President Noriya Kaihara said that depending on the tariff levels, “we might have to consider maybe relocating production … from Mexico to Japan, or Mexico somewhere else.”
“We haven’t formalized what we can do, but we are working out what we will be able to do,” Kaihara added.
The prospect of new high tariffs on goods from China has added new impetus to suppliers looking for alternative sources. Panasonic (OTC:) Energy, which supplies electric vehicle batteries to Tesla (NASDAQ: Monde Graphite.
But Allan Swan, Panasonic Energy’s North American president, told Reuters that with Trump in office, the company is accelerating plans to remove all Chinese content from its US-made batteries.
Swan said Chinese materials currently make up a small part of his supply chain, but the goal is “not to have a dedicated supply chain from China.”
“That’s the No. 1 goal,” he added.
