Global auto suppliers are evaluating how much of their production can be moved to or near the United States as a strategy to deal with tariffs promised by President-elect Donald Trump, industry executives said at CES in Las Vegas.
The auto industry has already faced eight years of protectionism in the United States, from actual tariffs and threats during Trump’s first term, to more tariffs and the Inflation Reduction Act under President Joe Biden.
Most of these measures were aimed specifically at China, notably a proposal by the Biden administration to ban Chinese software and hardware in cars on American roads.
However, Trump has promised to go much further, imposing a general 10% tariff on global imports to the United States and a much larger 60% tariff on Chinese products. In late November, he specifically promised a 25% tariff on imports from Canada and Mexico when he takes office on January 20.
Read: Trump is studying declaring an economic emergency in the US to justify tariffs
Tariffs that high would be difficult to pass on to consumers and would make many automotive parts produced in lower-cost markets economically unviable, or in the case of China, virtually impossible to sell products in the United States.
“Anyone can do the math,” Paul Thomas, president of Bosch North America, the world’s largest automotive parts supplier, told Reuters.
“If it’s 10%, 20%, 60% (tariffs) you have to say, ‘OK, how many scenarios do that make sense and which ones do we implement?’ “We have already started with some of those scenarios even before he (Trump) takes office,” he said.
On the sidelines of the CES conference, Thomas offered a theoretical example of a generic electronic control unit that Bosch could currently manufacture in Malaysia or a similar market, but that now “we are considering manufacturing in Mexico or Brazil (…), areas where we already have presence,” he said.
Bosch is waiting until Jan. 20 to see what happens before making “significant decisions,” Thomas added, a point that was reiterated by other suppliers and automakers.
During his first term, Trump used the threat of tariffs against specific countries or even manufacturers to pressure them to increase production in the United States.
When Toyota announced plans in 2017 to produce the Corolla sedan in Mexico for American consumers, Trump took to Twitter to claim: “NO WAY! Build the plant in the US or pay a big border tax.”
In less than a year, Toyota announced a $1.6 billion joint plant with Mazda in Alabama, and Trump declared victory.
They do not want to depend on China
Automotive suppliers have already faced rising labor costs, worker shortages, and a slowdown in electric vehicle (EV) growth.
The tariffs could further exacerbate concerns, as EV demand is likely to fall further this year, said Leonard LaRocca, KPMG’s U.S. auto industry leader.
Major suppliers responded to protectionism in the United States and huge 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 passed the IRA law. That legislation, more carrot than stick, encouraged a host of suppliers, including Britain’s Dowlais, to invest more in the U.S. market as they sought contracts with manufacturers interested in EV subsidies, although the incoming Trump administration aims to dismantle parts of the law
Read: Trump advisers target critical areas to impose tariffs: The Washington Post
Nikolai Setzer, CEO of Continental, told Reuters that after years of localizing more production in each region where it operates 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 suppliers in North America about whether alternative local components are available for the parts, so the company can avoid the tariffs. “Wherever we can localize more and it makes sense, we will do it.”
Honda’s production capacity in Mexico is approximately 200,000 vehicles annually, and 80% of them are exported to the US market.
Honda does not rule out moving production from Mexico to another country
Speaking at a roundtable at CES, Honda Executive Vice President Noriya Kaihara said that, depending on tariff levels, “we might have to consider changing the production location (…) from Mexico to Japan, or from Mexico to another place.”
“We haven’t formalized what we can do, but we are working out what we will be able to do,” Kaihara added.
The possibility of new high tariffs on products from China has added new impetus to suppliers looking to find alternative sources.
Panasonic Energy, which supplies EV batteries to Tesla, has already worked to move more of its supply chain to North America, including deals with synthetic graphite anode materials producer Novonix and Canadian natural graphite maker Nouveau Monde Graphite.
Read: Trump rejects version that he is analyzing reducing his tariff plans
But Allan Swan, president of Panasonic Energy in North America, told Reuters that with Trump soon to take office, the company is accelerating its plans to remove all Chinese content from its American-made batteries.
Swan said Chinese materials currently make up a small portion of its supply chain, but the goal is “not to rely on the supply chain coming from China.”
“That is goal number 1,” he added.
With information from Reuters
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