Auto suppliers seek pause on steel, aluminum tariffs until U.S. capacity develops

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WASHINGTON – Unable to make many exceptions to the Trump administration's tariffs on imported steel and aluminum, car suppliers are now begging for a little grace to prevent further damage to their earnings.

Industry officials say they understand that the White House wants to reduce production to the US as part of its job strategy. But they say that suppliers need time to develop more affordable domestic sources of metal and can not afford to make those investments if they get into trouble with the tariffs at the same time.

So they pitch the administration in a grace-free period of the 25 percent rates until sufficient American capacity is built up.

"It is difficult, if not impossible, to finance the costs of those tariffs, as well as technological development to localize that production," said Ramzi Hermiz, CEO of metal parts maker Shiloh Industries Inc., of Ohio, organized last week at a discussion here by the Motor & Equipment Manufacturers Association. "We need a period of time to redefine our supply chain."

Hermiz also called on President Donald Trump to exempt Canada and Mexico from the metal tariffs, because they both hesitantly agreed to a new free trade agreement. The new deal between the US and Mexico-Canada would only come into effect after three years of approval to give the industry time to adjust. Hermiz said that companies should have a similar transition period to find domestic steel and aluminum stocks.

"Having these rates without allowing manufacturers to find localized production runs counter to the goal of the administration," said Ann Wilson, MEMA's senior vice president for government affairs.

The metal tariffs, she noted, are just one of the many headwinds for the supplier industry, along with tariffs for Chinese imports, retaliatory rights from trading partners and the potential for a lower return on sunken investment if the administration manages to reduce fuel consumption and emission standards .

No easy switch

Canada, which took a Trump protectionist page, claimed a 25 percent tax on seven types of steel imports last week when they exceeded the historical average volumes. The action was due to concerns that cheap foreign steel normally destined for the United States is being diverted to Canada. Canada has already imposed a 25 percent retaliation on American steel. It is unclear whether the surtax would apply if the US and Canada were to resolve their tariff struggle.

Many car manufacturers and suppliers involve the vast majority of their steel and aluminum in the United States, but certain high quality types required for specialized applications are available only abroad or to a limited extent in the interior.

Switching sources means that material engineers from car manufacturers and parts suppliers with integrated steel plants are working to develop new alloys with a similar input. They must then be validated to ensure that the products meet the technical specifications. That all takes time, say the company managers.

"If we can meet the administration halfway to talk about localization, they have to meet us halfway and say," How much time do you need? "" Wilson said. "That's a very different way to talk about it … so we'll see how successful we can be."

The proof, according to Hermiz, is that the administration grants exclusions to the steel industry that seeks protection against foreign competition because the raw materials are not available.

"If they can not find all their raw materials to localize their steel production, we consume," he said, "what does anyone think we can do at night as an industry when they produce a more basic raw material? versus the complex infrastructure that we are building? "

Tears down

Stacy Ettinger, a partner at K & L Gates and a former senior policy advisor to the minority leader of the Senate Chuck Schumer, D-N.Y., Wondered if the administration would go along with a tariff break. "I think they are so far on the road with regard to rates and product exclusions," she said.

The impact of tariffs has taken a while to sneak through to customers and consumers, because manufacturers themselves absorbed the costs or used pre-tariff inventories, but according to economists the effects begin to show. Ford Motor Co. has said that it will take a profit of $ 1 billion because of the metal tariffs.

"American steel costs are more than anywhere else in the world," said Joe Hinrichs, Ford's president of global operations, last week at a ceremony that marks the beginning of Ford's production of the Ford Ranger pickup. factory near Detroit.

In July, General Motors said raw material costs had risen by $ 300 million in the second quarter compared to a year earlier.

Prices up

The tariffs enabled domestic producers to increase their steel prices and profits. The price of hot rolled strip for household use – the standard for steel made in America – has increased by 28 percent in 2018, when the US applied import duties. The levies, according to SteelBenchmarker in June and July, the price up to about $ 1,000 per ton.

American steel currently costs $ 413 more per ton than steel in China, the world's largest consumer, accounting for more than half of global demand.

Companies can avoid paying duties by requesting exemptions, but according to critics, the process is cumbersome and slow. Applications must be submitted for each unique product, no matter how similar.

As of 22 October, 42,040 samples and 5,302 aluminum had been filed for exclusion applications; 26,380 steel requests were still in the assessment pipeline (11,284 applications had been approved), as were 4,397 aluminum decisions (743 applications approved), according to the Ministry of Commerce.

In the course of the summer, the bureau expressed some criticism by giving petitioners the opportunity to respond to any company that opposed their request for exemption.