Aluminum tariff adds wrinkle just as USMCA gets going

In late June, as the auto sector prepared to shift to the United States-Mexico-Canada Agreement, reports began circulating that the Trump administration was considering reimposing a tariff on aluminum imports from Canada.

The possibility of the tariff — just as the long-awaited trade pact was going into effect — disappointed many in the industry, with trade groups representing automakers and parts suppliers urging the administration to focus on a successful transition to USMCA.

The concern grew when President Donald Trump declared this month a 10 percent tariff on some Canadian aluminum imports, effective Aug. 16. Some in the industry see it as another obstacle stacked on top of COVID-19 stress and USMCA compliance.

The outcome of the November election could be the tipping point. If the tariff remains in place long term, costs will increase up and down the supply chain.

For Martinrea International Inc., a global Tier 1 supplier, operating two aluminum plants in Mexico has eased some stress at a time when tariffs could be threatened one day and enforced on key trading partners weeks later. When Trump announced the tariff on Canada, company Chairman Rob Wildeboer didn't flinch.

"We've been down this road before," he told Automotive News, citing the president's actions in 2018 when he levied tariffs of 25 percent on steel and 10 percent on aluminum on all trading partners under national security grounds — and during crucial trade agreement negotiations.

This time, there is more certainty because USMCA is in place, Wildeboer said. The Canadian metal parts supplier can still produce blocks for engines such as for the Chrysler Pentastar, as well as other structural aluminum parts without some of the elevated tariff anxiety other suppliers may be facing, he explained.

"At the end of the day," he said, "a 10 percent tariff on aluminum — in the broad scope of the multitrillion-dollar North American economy — it's really relatively minor."

Lou Longo, a partner and international consulting practice leader at Plante Moran, sees the tariff action as merely a political move by Trump and part of his America First platform and reelection efforts.

"Is this going to cause issues within the supply base? I don't think so," Longo said. "The industry is smart enough to realize we're in the last 100 days of an election cycle, and there are going to be some possible bold moves — trade moves — that occur."

Still, tariffs — particularly ones that are "on again, off again" — don't send a strong signal to the industry that it's safe to make long-term investments, said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich.

"This is a destabilizing move," she said. "Implementing USMCA in and of itself is a costly endeavor, and then adding tariffs on top of that when we just inked a deal to be a free-trade region is not the direction the auto industry wants to see this going."

Democratic presidential nominee Joe Biden, if elected, could take a different approach.

"Rather than picking fights with our allies, Biden will work with them to deliver for our workers, focusing on addressing overcapacity in industries, including in aluminum," said Ben Halle, a spokesman for the Biden campaign.

While tit-for-tat tariffs don't nurture the trade relationship, groups representing automakers and suppliers say the actions haven't caused severe enough stress to hinder a smooth changeover to USMCA. The industry knows the direction it has to go to comply with the rules, including the requirement that 70 percent of an automaker's yearly steel and aluminum purchases is sourced in North America.

A major concern from all sectors of the industry is cost, especially if the extra duty remains in place for more than a year.

The American Automotive Policy Council opposes the tariff, especially as the industry contends with USMCA implementation and COVID-19. The tariff is "one more additional cost and burden for the industry to bear," said Matt Blunt, president of the council, which represents the Detroit 3.

The additional cost per vehicle will vary by manufacturer and model, but industrywide costs from the tariff and Canada's $2.7 billion countertariffs on U.S. goods, mostly aluminum products, could add up to at least "hundreds of millions of dollars," he said.

Autos Drive America, a trade association representing major international automakers, echoed those concerns. The group, formerly known as Here for America, said the effect of the tariff is increasing uncertainty in the market and higher costs as price increases are absorbed up and down the supply chain.

And it's the consumer who will pay the price, according to Ann Wilson, senior vice president of government affairs at the Motor & Equipment Manufacturers Association. For global supply chains, a tariff on aluminum has a cumulative effect for companies dependent on raw materials and finished goods from around the world. For the association's members, that means facing additional tariffs on U.S. imports from China and absorbing steel and aluminum tariffs on some imports from regions outside North America, including Japan and the European Union.

"Manufacturing flourishes when there's certainty," Wilson said. "Overall, I'm not sure that this particular decision shakes up the future of USMCA. But it does not assist in an effort to provide a more stable market, a more stable environment."