In this episode, the Trade Guys welcome a special guest: the self-proclaimed Trade Lady, Leila Afas. Afas advises Toyota Motor North America on geopolitical and market trends as Director of International Public Policy. How are the auto, steel, and aluminum tariffs affecting the auto industry? How does uncertainty throw a wrench in production? Afas, Andrew, and the Trade Guys discuss.

What We’re Reading

“Washington tariff relief backlog hobbles US auto suppliers,”

Financial Times

“Suppliers to the largest US car manufacturers are waiting for decisions on more than 1,000 applications for relief from the Trump administration’s new tariffs, and have been denied requests for more than 300, in a sign of the pressure the industry faces from restrictions on imports.”

“The costs added by the tariffs come as the US auto industry is grappling with flagging demand, and has been laying off thousands of workers.”

“A Financial Times analysis of the exemption requests filed by 246 companies that supply Ford Motor and General Motors and published by the government shows these companies have filed about 1,780 requests for exclusions from the US tariffs imposed this year on steel and aluminium and on imports from China, arguing that the products are not available from American suppliers. Only 360 of those requests have been approved.”

“Industry groups have warned that the cost increases could lead to job losses in the automotive and other manufacturing industries.”  

Why it matters: Companies that supply parts to U.S. auto assemblers have yet to receive decisions on more than 1,000 applications for exemptions from tariffs imposed by the Trump administration on steel, aluminum and goods from China, according to analysis done by the Financial Times. The tariff costs add pressure to the auto industry already dealing with slowing sales and rising material costs.

Key questions: How does each set of tariffs impact automakers and parts suppliers? How is the auto supply chain adapting to deal with the metal tariffs and those on Chinese imports? Are the tariffs forcing companies to manufacture more parts in the United States or are they merely raising costs at different points in the auto supply chain? Why is the pace of exclusion request reviews so slow?

“Trump Tariffs Pit Auto Companies Against Each Other,” 

Wall Street Journal

“Fights are emerging across the auto industry over who should bear the costs of tariffs, leading to new stress along the supply chain.”

“Earlier this year, Pierburg US LLC, a manufacturer of parts used in the best-selling Ford F-150 pickup truck and Jeep Wrangler sport-utility vehicle, sued one of its suppliers over tariffs imposed this year by the Trump administration. The two sides have been in business for at least 20 years.”

“Pierburg alleged that the supplier’s refusal to ship electric motors from China to Pierburg’s factory in South Carolina unless it paid the 25% tariff cost in full was ‘extortion.’ A failure to deliver the parts could shut down multiple auto factories and “plunge the automotive industry into complete chaos,” Pierburg said in court filings.”

“The supplier dismissed Pierburg’s claims as ‘hyperbolic rhetoric,’ arguing in filings that it was under no contractual obligation to ship parts at the pre-tariff price, because of the ‘unexpected nature and monumental effect of the current trade war.’”

Why it matters: The exceedingly complex auto supply chain is having a difficult time determining who should pay for the added costs generated by the administration’s tariffs. This has led to wrangling in contract negotiations between assemblers and suppliers, and even law suits between companies over who is responsible to shoulder the added costs.

Key questions: Who should be responsible for absorbing costs generated by the administration’s tariffs? Should the costs be diffused throughout the supply chain, paid by the component of the supply chain that is most immediately impacted, paid by the final assembler, or paid by the consumer? What are the implications of passing costs all the way to the consumer?