Abhirup Roy
LAS VEGAS (Reuters) – Global auto suppliers are deciding how much of their production can move to or closer to the United States as a hedge against tariffs promised by President-elect Donald Trump, according to industry executives at CES in Las Vegas.
The auto industry has already endured eight years of U.S. protectionism, starting with actual and threatened tariffs during Trump’s first term and then new tariffs and the American Inflation Relief Act under President Joe Biden. Most of these measures were aimed directly at China, notably the Biden administration’s proposal to ban Chinese software and hardware from cars on US roads.
But Trump has promised to go much further, imposing a blanket tariff of 10% on global imports to the United States and a much higher tariff of 60% on Chinese goods. In late November, he specifically promised to impose 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 unprofitable and, in China’s case, make it virtually impossible to sell products in the United States.
“Anyone can do the math,” Paul Thomas, President of North America. Bosch (NS:), the world’s largest supplier of auto parts, told Reuters. “If it’s 10%, 20%, 60% (tariffs) … you have to say, ‘OK, how many scenarios make sense for this and which ones are we going to act on?'”
“We’ve already started working on some of them before he (Trump) takes office.”
Speaking on the sidelines of the CES tech conference, Thomas gave a theoretical example of a universal electronic control unit that Bosch could currently produce in Malaysia or a similar market, but now “we’re looking at doing it in Mexico or Brazil… areas where we already have a presence.” , he said.
Bosch is waiting until Jan. 20 to see what actually happens before making any “significant decisions,” Thomas added, a sentiment echoed by other suppliers and automakers.
During his first term, Trump used the threat of tariffs against specific countries or even individual automakers to push them to increase production in the United States.
When Toyota (NYSE:) announced plans to produce the Corolla sedan in Mexico for US consumers in early 2017, Trump took to Twitter, now known as X, saying: “No way! Build a factory in the US or pay a big border tax.”
Within a year, Toyota announced a $1.6 billion joint plant in Alabama with Mazda instead, and Trump declared victory.
‘NO. 1 OBJECTIVE’
Major suppliers have responded to U.S. protectionism and widespread supply chain disruptions during the coronavirus pandemic by localizing production to avoid parts shortages or the risk of border taxes.
This process accelerated after the Biden administration passed the IRA. The legislation was more of a carrot than a stick, prompting a slew of suppliers, including UK-based Dowlais, to invest more in the US market as they sought contracts with automakers seeking subsidies for electric vehicles even as the new Trump administration seeks to eliminate parts of the IRA.
Nikolai Setzer, Continental’s chief executive, told Reuters that after years of localizing more production to each region where it operates to serve nearby customers, the German supplier is more “undervalued than the rest of the auto industry or our competitors.”
But Continental is negotiating with its North American suppliers to have alternative local components available for parts so the company can avoid tariffs. “Wherever we can continue localization and it makes sense, we will do so.”
Honda (NYSE:) production capacity in Mexico is approximately 200,000 vehicles per year, 80% of which are exported to the US market.
Speaking at a roundtable at CES, Honda executive vice president Noriya Kaihara said that depending on the level of tariffs, “we may have to think about the fact that we may change the location of production … from Mexico to Japan or from Mexico to another place.”
“We haven’t formalized what we can do yet, but we are working on what we can do,” Kaihara added.
The possibility of new high tariffs on goods from China has given new impetus to suppliers seeking alternative sources. Panasonic (OTC:) Energy, which supplies electric vehicle batteries to Tesla (NASDAQ:), is already working to move much of its supply chain to North America, including through supply agreements with synthetic graphite anode material maker Novonix and Canadian natural graphite producer Nouveau Monde. Graphite.
But Allan Swan, president of Panasonic Energy North America, told Reuters that with Trump in office, the company is accelerating plans to remove all Chinese content from its U.S.-made batteries.
Swan said Chinese materials currently make up a small part of its supply chain, but the goal is “not to isolate the supply chain from China.”
“That’s goal No. 1,” he added.