Auto suppliers urging for a transition period from tariffs till they switch to domestic sourcing of metals

Auto suppliers are pitching the U.S. administration on a grace period from tariffs on imported steel and aluminium until enough U.S. capacity is built up. According to them, it will take time to develop more affordable domestic sources of both the metal and they can’t invest in new facilities while getting beaten up by tariffs.

"It's difficult, if not impossible, to fund the cost of those tariffs as well as technology development to localize that production," said Ramzi Hermiz, CEO of metal parts maker Shiloh Industries Inc., of Ohio, last week during a discussion here organized by the Motor & Equipment Manufacturers Association. "We need a window of time to ... redefine our supply chain."

Hermiz also requested administration to exempt Canada and Mexico from the metal tariffs since they both tentatively agreed to a new free trade agreement. The new U.S.-Mexico-Canada deal would take three years to go into effect.  Hermiz expected similar transition period to find domestic steel and aluminium supplies.

"Having those tariffs in place without giving consuming manufacturers the opportunity to find the localized production is going against the goal of the administration," said Ann Wilson, MEMA's senior vice president for government affairs.

The metal tariffs are one of the many hurdles that are crippling the auto industry in the recent times along with various tariffs on Chinese imports and retaliatory tariffs.

Canada last week imposed 25 per cent surtax on seven types of steel imports once they exceed historical average volumes fearing cheap foreign steel heading towards the U.S. may be diverted to Canada. Canada already has imposed a 25 per cent retaliatory tariff on U.S. steel.

Normally automakers and suppliers procure the vast majority of their steel and aluminium in the U.S., but import some high-end grades needed for specialized applications. Developing those high grade alloys domestically and validating them for technical specifications need time.

"If we can meet the administration halfway to talk about localization, they need to meet us halfway and say, 'How much time do you need?'” Wilson said.

Stacy Ettinger, a partner at K&L Gates and a former senior policy adviser to Senate Minority Leader Chuck Schumer, D-N.Y.is of the view that the administration would agree on a tariff pause or transition period.

Economists are analysing the effects of the tariffs that are slowly starting to show. Ford Motor Co. has said it is taking a $1 billion (all figures USD) profit hit because of metals tariffs.  General Motors said second-quarter commodity costs were up $300 million YoY. 

Companies can apply for exemptions, but, the process is too cumbersome and slow for the small scale companies as applications are to be submitted for each unique product separately.

According to the Department of Commerce, as of Oct. 22, 42,040 steel and 5,302 aluminium exclusion requests had been filed with the administration. 4,397 aluminium decisions are under review while 743 requests have been approved.