US proposes tariffs on $4B EU imports

Dive Brief:

  • The U.S. proposed tariffs on $4 billion of European Union goods, in response to an ongoing dispute over aircraft subsidies. The latest duties comprise a supplemental list, adding on to tariffs proposed in April, valued at $21 billion and subject to duties up to 100%.
  • USTR said the supplemental list comes in response to public comments and testimony in May on the initial list of EU tariffs. A number of the comments requested duties on additional products not on the original 14-page tariff list, according to USTR.
  • USTR will hold a hearing Aug. 5 on the supplemental list. Implementation of the tariffs is subject to the decision of an arbitrator investigating the claims of harmful EU aircraft subsidies. USTR said if the arbitrator comes to a decision before the public comment period is over, “the USTR may immediately impose increased duties on the products included in the initial list, and take further possible actions with respect to products on the supplemental list.

Dive Insight:

The $4 billion worth of products on the supplemental list consists mainly of food items, including cheeses, olives, meats, pasta and whiskey. Chemicals and metals are also on the list.

The Scotch Whisky Association, headquartered in the U.K., said exports of scotch and Irish whiskey from the EU to the U.S. have faced zero tariffs for 20 years. Imposing duties “harms economies on both sides of the Atlantic,” a spokesperson said in a statement. Scotch makes up 12% of the U.S. whiskey market, and the U.S. is the largest export market for whiskey by value.

Unlike the China tariffs, which could not be imposed until after a seven-day rebuttal comment period following the last day of hearings, the U.S. can implement the proposed EU tariffs at any time after the arbitrator makes a decision, which could happen before the conclusion of a public comment period.

The timing uncertainty keeps supply chains on their toes, and importers and exporters must be prepared for tariffs to take effect at any time.

Comments and testimony from earlier this year on the EU tariffs reflect similar sentiment to the seven days of USTR hearings on the tranche four China tariffs: Alternative sources of supply don’t always exist, supply chains can’t pick up and leave overnight and higher import tax rates can make businesses non-competitive.

In one comment on the EU tariffs, Mars Wrigley Confectionary said proposed tariffs on “sweet biscuits” would make the manufacturer non-competitive. Several varieties of Twix candy bars fall under this category, and “no non-EU alternative source for them exists in our supply chain,” according to Mars.

The North American Olive Oil Association noted similar concerns related to sourcing. “There is no viable alternative to European olive oils, either in terms of volume or flavor profile and quality,” the organization said in a comment.

A comment from Chicken of the Sea noted its business already has extremely low margins. Additional duties, especially up to 100%, would have significant bottom-line impacts and likely lead to increased consumer prices.

02 July 2019 | Shefali Kapadia | Supply Chain Dive

Trump: US won’t impose tariffs on $300B Chinese goods ‘for the time being’

Dive Brief:

  • The U.S. will not impose list four of tariffs, on $300 billion worth of imports from China, “for at least the time being,” President Donald Trump said during a press conference Saturday after the G-20 summit in Osaka, Japan. Existing 25% tariffs on $250 billion of Chinese goods, along with China’s retaliatory tariffs, will remain in place.
  • Trump said the U.S. and China agreed to resume trade negotiations but did not specify a date or particular issues to be discussed.
  • “China is going to be buying a tremendous amount of food and agricultural product, and they’re going to start that very soon, almost immediately. We’re going to give them lists of things that we’d like them to buy,” Trump said, without providing details on how much or what types of products. “Our farmers are going to be a tremendous beneficiary.”

Dive Insight:

The decision to indefinitely postpone tariffs on nearly all remaining imports from China comes as welcome news to many of the businesses and organizations that testified during seven days of hearings at the Office of the U.S. Trade Representative in recent weeks.

Those who testified in opposition to the tariffs noted a lack of alternative sourcing options and increased costs that would degrade margins, raise prices for consumers or both.

“Pulling back from the brink of further tariff escalation is a good sign for retailers and their customers,” said David French, senior vice president for government relations at the National Retail Federation, in a press release emailed to Supply Chain Dive. He added he hoped continued negotiations between the two countries would lead to the lifting of existing tariffs, which amount to 25% duty rates on $250 billion of Chinese imports.

While export supply chains have been less impacted than import ones in the ongoing U.S.-China trade war, due to the trade imbalance between the two nations, agricultural supply chains have suffered from high supply, lower demand and in turn lower prices, as Chinese importers turned to nations such as Brazil to avoid paying tariffs.

The agreement for China to buy more agricultural products from the U.S. could provide some relief, depending on how much the country will buy and what types of goods.

29 June 2019 | Shefali Kapadia | Supply Chain Dive

Tesla receives 1-year tariff exclusion on Japanese aluminum imports

Dive Brief:

  • The U.S. Department of Commerce granted Tesla’s request for a tariff exclusion on Japanese aluminum imports this week. The tariffs are set at 10%, and the company uses aluminum to manufacture batteries for electric vehicles in its Nevada-based factory.
  • Tesla requested the exclusion in April for 10,000 metric tons annually of aluminum imports from Nippon Light Metal. The Bureau of Industry and Security (BIS), under the Commerce Department, granted this request for one year.
  • Tesla also requested exclusions for products affected by tariffs on Chinese imports, including key technological components like the Model 3’s autonomous driving “brain.” Those requests were denied earlier this month.

Dive Insight:

The specific type of aluminum for which Tesla requested a tariff exclusion “is not produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality,” according to the BIS document granting Tesla’s request.

The document offers insight into the rationale behind the waiver, that no reasonable alternative source of supply exists for Tesla.

There has been growing concern among U.S. automakers that domestic mining of metals such as lithium and aluminum (key materials for rechargeable car, laptop and smartphone batteries) is vastly insufficient to support expected demand. Roughly half of the world’s lithium mines are located in China, which also controls 60% of global electric battery production capacity.

If the trade war with China continues, domestic automakers worry planned production and expansion of electric vehicles could be hamstrung by the increased costs. Tesla is already struggling with financial losses, and CEO Elon Musk said the company will need to significantly cut costs going forward. The aluminum tariff waiver may give Tesla some breathing room.

26 June 2019 | Morgan Forde | Supply Chain Dive

56% of manufacturers say trade issues are a top concern

Dive Brief:

  • 56% of respondents in the National Association of Manufacturers (NAM) second-quarter survey cited trade tensions, including tariff threats against China and Mexico, as a top concern for their business.
  • Despite the concern, 80% of respondents said they had a positive outlook for their business, although that figure is down from almost 90% in March. The tariff spat with Mexico unfolded while this survey was being conducted, NAM said.
  • More than 80% also said the passage of the United States, Mexico and Canada Agreement (USMCA) was important to their company. “Manufacturers in America sell more to Canada and Mexico, our country’s largest two trading partners, than our next 11 trading partners combined,” the survey said.

Dive Insight:

The survey noted it “is no secret that manufacturers rely on trade to grow their businesses.” Protectionist measures, such as tariffs or other trade barriers, can impede growth and reduce confidence in the manufacturing sector.

Trade issues were also prominent in the Institute for Supply Management’s last monthly survey.

“Respondents expressed concern with the escalation in the U.S.-China trade standoff, but overall sentiment remained predominantly positive,” ISM Chair Timothy R. Fiore said in a statement.

Other challenges the 689 respondents to the NAM survey noted were the cost of raw materials and the ability to attract and retain workers. Hiring and retention challenges have led to more than 78% of respondents saying a reformed immigration system could address the workforce shortage, the survey notes.

Notwithstanding these issues, NAM said the manufacturing sector is still expanding, “albeit more slowly, and business leaders in the sector continue to be mostly upbeat,” a summary of the survey reads.

25 June 2019 | Matt Leonard | Supply Chain Dive

Mexico becomes 1st country to ratify USMCA

Dive Brief:

  • Mexico became the first country to ratify the United States, Mexico and Canada Agreement (USMCA) Wednesday when the Mexican Senate voted overwhelmingly to approve the deal.
  • Canadian Prime Minister Justin Trudeau is in Washington today where he will meet with President Donald Trump and lobby for the deal with members of Congress.
  • With several major hurdles cleared in recent weeks, the path forward for the USMCA is somewhat more clear, though it is by no means a done deal.

Dive Insight:

In order for the deal to go into effect, all three countries’ legislatures must vote to ratify it. Last month, the U.S. lifted steel tariffs on both of its neighbors and Mexico passed a consequential labor law — both considered essential to the deal’s survival. But after recent tensions between the U.S. and Mexico over immigration at the U.S. southern border and tariffs on Mexican imports Trump threatened as a result, the future of the deal was uncertain.

Despite Mexico’s ratification and the tariff threats and machinations of the past month, support and skepticism for the deal remain largely unchanged in the U.S. Congress.

Nancy Pelosi is still waiting to see how Mexico implements its new labor legislation, the passage of which was a condition of Democratic support, reported Politico.

Some Democrats have also called for revisions to the deal. The Trump administration has strongly opposed amending the agreement in the past, but U.S. Trade Representative Robert Lighthizer went to Capitol Hill Wednesday to tell the House Ways and Means Committee he is open to hearing their concerns and possibly making accommodations in the text.

Congress has 18 working days left when both houses are in session before summer recess, and Canada is reportedly looking to pass the deal somewhat in tandem with the U.S. in what Canadian Foreign Minister Chrystia Freeland called a “goldilocks approach” — not too fast, not too slow.

20 June 2019 | Emma Cosgrove | Supply Chain Dive

Trump, Xi to resume US-China trade talks at upcoming G20 summit

Dive Brief:

  • President Donald Trump announced via tweet June 18 he will meet with Chinese President Xi Jinping for “extended” trade talks at the upcoming G20 summit in Japan June 28 and 29. Trump previously said if Xi did not attend the G20, the U.S. would immediately levy tariffs on an additional $300 billion of Chinese goods, covering nearly all imports from the country.
  • “Leader level engagement at last year’s G20 was critical to jumpstarting the talks,” Clete Willems, a former trade negotiator for the Trump campaign, told Reuters, referring to the 2018 G20 meeting between Xi and Trump in Argentina. “It will be essential to managing the current political dynamic and getting the talks back on track once again.”
  • Meanwhile, in Washington D.C., more than 300 witnesses who represent major businesses and supply chain and manufacturing associations are testifying in U.S. Trade Representative (USTR) hearings to express their opposition to the proposed fourth tranche of tariffs. The hearings opened on June 17 and will close on June 25 before kicking off a week-long rebuttal period. Whether the tariffs are implemented will likely be subject to the results of the G20 negotiations.

Dive Insight:

While neither country’s delegation has released formal commitments, businesses on both sides of the Pacific hope for a resolution, or at least a stabilization, of the unpredictable trade war. However, as the previous year’s negotiations have shown, talks alone are not a guarantee. The last G20 meeting produced a 90-day truce, but the list three and list four tariff announcements came not long after the end of the truce.

The uncertainty has led to inventory stockpiling as companies try to rush goods to the U.S. ahead of the impending tariffs. While this has caused record-breaking traffic at some ports, and even capacity problems, the trend is beginning to slow down as demand has begun to soften and firms await the results of the trade talks.

Likewise, the recent proposition and scrapping of tariffs on Mexican imports has companies uncertain about where to go next in terms of materials sourcing and manufacturing.

“I started looking in Mexico, but I got scared off,” Mark Schneider, CEO of Kenneth Cole Productions, a clothing company, testified in a USTR hearing. “Some sort of stability with this type of discussion would be really helpful. There’s no preparation for anything.”

Companies that rely on China for electronics and machine parts also want a truce. David Baer, general counsel for domestic TV manufacturer Element Electronics, stated, “we will be forced to shut down the South Carolina factory and move our production offshore,” as the cost of components will be too high to sustain its U.S. operations.

Apparel is another vulnerable category. In an interview with NPR, American Apparel & Footwear Association CEO Rick Helfenbein said 42% of apparel and 72% of footwear into the U.S. comes from China. “We’ve been threatened with this for some time … And we don’t exactly have a place to go, which means, quite frankly, that prices will go up, that sales will go down,” Helfenbein said.

19 June 2019 | Morgan Forde | Supply Chain Dive

US denies tariff exemptions for Tesla, GM, Uber

Dive Brief:

  • The U.S. Trade Representative (USTR) has denied tariff exemptions from Tesla, GM, and Uber, according to Reuters which cited government documents for the finding. The USTR allows for tariff exemptions if companies can show products can’t be acquired from another source.
  • Telsa applied for exemptions on key technological components for its electric vehicles including it’s “brain” — the car’s main autopilot computer. GM filed for over 50 exemptions ranging from components for push-button ignition to battery cables. Uber sought exemptions for its electric scooter fleets. In total, Reuters reports that the USTR has received over 13,000 exemption requests since the trade war began and has rejected 7,000 of them.
  • In the case of Tesla, GM and Uber’s denials, the USTR claimed that the technologies they wished to exempt from tariffs were material to Beijing’s “Made in China 2025” initiative or other critical industrial programs. “Made in China 2025” refers to a recently launched Chinese government initiative aimed at leveraging government subsidies and nationalized manufacturing capabilities to increase its dominance in high-tech manufacturing across a range of industries.

Dive Insight:

Tesla, GM and Uber are not the only companies in the industry denied exemptions. In May, Fiat Chrysler, Nissan and Volvo (among other major auto brands) applied for tariff exemptions citing profitability concerns and were rejected on similar grounds.

Now fully exposed to the 25% tariffs on affected components, automakers are preparing for lost profits and consumer price hikes. In its USTR filing, Fiat Chrysler said exposure to the 25% duties would force it to “reduce its margins, pass the additional cost onto consumers or some combination of the two.”

Likewise, Tesla stated in its application, “choosing any other supplier [for its autopilot computer] would have delayed the [Model 3] program by 18 months with clean room setup, line validation and staff training.”

Despite the impact on automakers in the U.S., the Trump Administration maintains the tariffs are necessary to preserve American intellectual property from “persistent theft” by the Chinese.

Drewry report released before the rate on the third list of tariffs increased last month, stated the 25% figure would reduce vehicle imports from both Asia and Europe by 11% in 2020.

14 June 2019 | Morgan Forde | Supply Chain Dive

US export losses from trade war pegged at $40B

Dive Brief:

  • The trade war between China and the U.S. could result in an annual loss of $40 billion in U.S. exports, Industry Week reported citing research by the Institute of International Finance.
  • This impact can be seen at Asian ports where empty containers accounted for more than a quarter of all TEU traffic, according to The Loadstar.
  • None of this is great news for ocean carriers that make their money by hauling freight, not empty boxes, and could lead to higher annual contracts in the future, according to The LoadStar.

Dive Insight:

Perhaps the fundamentals of launching a trade war with China have merit. The theft and mistreatment of intellectual property, a potential monopoly around 5G cellular technology and market damaging dumping of some commodity products reflect an economic approach that has impacted the U.S. economy. The use of tariffs as an economic disincentive to penalize China for these activities is certainly one way to get their attention and to seek a negotiated solution.

Successful supply chains depend on long term stability. The politicization and mercurial approach to the application of tariffs on China, as well as the threats of tariffs on other countries, have created economic uncertainty. Public negotiations, often driven by social media, are not helpful at best and confusing and counterproductive at worst. Successful planning is proactive, not reactive.

The impacts of the tariffs can be felt throughout the supply chain. Tariff related cost increases are already being felt by many organizations and they are being passed on to customers and end users. Supply chains have been disrupted, and modified, because of current and threatened tariffs. Inventory has been purchased to hedge against increased costs, impacting operations and planning throughout the supply chain. Exports of certain agricultural products are down, forcing the U.S. government to provide subsidies to the growers most impacted.

The imbalance of shipping containers is but a symptom of misaligned supply and demand caused by the ongoing trade skirmishes. But it is also an indicator of real impact on the supply chain. No matter the political positioning, the tariffs have caused uncertainty in a process that thrives on consistency and dependability. While the trade issues with China now hopefully look like they may be resolved in the short term, long term ramifications in the supply chain are just coming into view.

04 March 2019 | Rich Weissman | Supply Chain Dive

Trump delays tariff hike initially scheduled for March

Dive Brief:

  • Tariffs on $200 billion worth of imports from China will remain at the current level of 10% for the time being, after President Donald Trump tweeted Sunday evening he would delay the scheduled increase to 25%. He did not specify the future date until which the tariff hike might be delayed.
  • The President in a two-part tweet pointed to “substantial progress” in trade talks between the U.S. and China, and called the negotiations “very productive.”
  • “Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement,” Trump tweeted. He did not say when the summit would be held.

Dive Insight:

Trump has alluded over the past several weeks to the possibility he would extend the trade deadline, originally scheduled for this upcoming Friday, March 1.

The initial deadline was set after he met with Chinese President Xi Jinping at the G-20 summit in Buenos Aires last year. Several rounds of trade talks have taken place in the U.S. and China since then. U.S. Trade Representative (USTR) Robert Lighthizer led the most recent round of high-level discussions this past Thursday in Washington.

The tweets from Trump come in contrast to Lighthizer’s repeated message that March 1 is a “hard deadline” for the U.S. and China to hammer out a deal. The USTR had not released a statement on the tariff delay as of press time.

Trump, along with several members of the administration, cited progress in a series of trade negotiations between the two countries, but no one has revealed significant details of what the progress entails. The White House also has not released a statement confirming Trump’s tweets or offering specifics on the progress of the trade talks.

Lighthizer will testify before the House Ways and Means Committee Wednesday, which may give us some specifics on the trade discussions and what progress was made related to intellectual property, technology transfer and additional issues the U.S. and China set out to resolve.

Trump said previously no trade resolution would be finalized until he and Xi met. If the two presidents meet in the near future, as Trump hinted in his tweet, it may be a sign a trade deal is in the cards.

What that means for tariffs, however, is uncertain. Trump said he would delay the tariff increase, but did not specify to what date, leaving businesses in limbo. It’s also important to note Trump said he would “delay” — but not cancel — the tariff increase.

For now, companies should still expect to see tariffs rise to 25%. The question is, when?

24 February 2019 | Shefali Kapadia | Supply Chain Dive

Automotive industry condemns tariff ‘secrecy’

Automotive sector bodies from the US and overseas have rounded on the US Department of Commerce for not giving them access to its report for Donald Trump about possible duties on imports of automotive goods.

Trump requested the report in May last year as part of a Section 232 investigation, which authorises the president to apply tariffs (or other means) to adjust imported goods if they are deemed to threaten national security. There is speculation that the levies recommended could be as high as 25% for vehicles and parts.

The report was delivered on February 17 and Trump now has 90 days to decide how to act.

A number of associations representing the automotive industry have complained that failure to disclose the figures is fuelling uncertainty, threatening businesses and jobs.

The Motor and Equipment Manufacturers’ Association (Mema) said it was crucial the automotive industry had the opportunity to review the recommendations and advise the White House on how the proposed tariffs could “put jobs at risk, impact consumers, and trigger a reduction in US investments” – impacts it said could set the industry back decades.

“Secrecy around the report only increases the uncertainty and concern across the industry created by the threat of tariffs,” stated Mema, calling for the immediate and full release of the report. “The ongoing uncertainty due to changing trade policies is already discouraging new investment, and additional tariffs from the 232 auto investigation will hinder future investment even more.”

Echoing Mema’s point, John Bozzella, president and CEO of Global Automakers, which lobbies for some of the foreign OEMs with plants in the US, added: “The prolonged uncertainty about these tariffs freezes investment decisions, makes planning for the US-Mexico-Canada Agreement [USMCA] next to impossible, and does incalculable damage to the US auto industry.

“Automotive trade does not imperil national security,” he added. “It strengthens our competitiveness and benefits consumers.”

National insecurity
Interest groups from overseas have also expressed their concerns. Erik Jonnaert, secretary-general of the European Automobile Manufacturers’ Association (ACEA), said imports of cars and parts from the EU clearly did not pose a national security risk to the US and any restrictions on trade would have a serious negative impact on both US and EU manufacturers.

European carmakers produce close to 1m vehicles a year in the US, of which roughly 60% are exported. EU manufacturers also directly and indirectly employ more than 470,000 Americans, according to ACEA.

All carmakers in the US, whether domestic or international, would face a significant increase in costs and Jonnaert said there was the possibility of higher repair costs being passed on to consumers.

“Such measures would make American automobile manufacturing less competitive and hit US consumers in their pockets. In other words, the imposition of tariffs would have a counter-productive effect on the US economy,” said ACEA.

Germany’s Association of the Automotive Industry (VDA) said it was incomprehensible that the US could label European car and parts imports as a danger to US national security, meanwhile. German Chancellor Angela Merkel said it was frightening the US was even considering the possibility.

German OEMs and component-makers have around 300 factories providing jobs to more than 113,000 people in the US, according to the VDA.

Job losses
Mema pointed out that the automotive supplier segment directly employed more than 870,000 US workers, with a total figure of 4.26m jobs reliant on it through the wider supply chain. Furthermore, suppliers account for the largest segment of manufacturing jobs in the nation and generate 2.4% of its GDP.

“Many suppliers import certain automotive parts (including electronic control units, bearings and valves) as inputs that are then manufactured into higher technology or more complex parts here in the US,” stated Mema. “Open markets and integrated supply chains provide a proven framework for economic growth and jobs in our industry.”

The imposition of tariffs comes at a time when raw materials are already being taxed, with the US applying duties of 25% on steel imports and 10% on aluminium. Mema said further levies on vehicles and parts could add $7,000 to the cost of a car.

Threat of retaliation
The American Automotive Policy Council (AAPC), which represents US carmakers FCA, Ford and GM, said any levies would probably encourage retaliatory tariffs against exports of US-made cars and undermine, rather than help, the economic and employment contributions the three companies made to the US economy.

Meanwhile, the Alliance of Automobile Manufacturers (AAM), which represents domestic and foreign carmakers, said import duties would be a tax “on our customers” and that higher duties would ultimately lead to the loss of “hundreds of thousands of US jobs”.

The AAM’s suggested solution is for Washington to conclude trade pacts with key partners such as the EU, Japan and the UK, and explore additional market access opportunities for US automotive exports.

US administrators have said tariff threats on cars are a way to win concessions in trade talks with Japan, the EU, Canada and Mexico, and that Trump has agreed not to impose automotive duties as long as talks with those trading partners proceed in a productive manner.

This week, Japanese and European policy-makers reiterated their belief that this was still the case. European Commission president Jean-Claude Juncker was quoted by German daily newspaper Stuttgarter Zeitung as saying: “Trump gave me his word that there won’t be any car tariffs for the time being. I view this commitment as something you can rely on.”

In recent days Trump tweeted: “I love tariffs, but I also love them to negotiate.”

20 February 2019 | Steve Garnsey | Automotive Logistics