Progress on China tariffs slow but still ‘a good start'

WASHINGTON — Any lingering hopes from the auto sector that Trump-era tariffs on Chinese imports would be quickly removed under President Joe Biden were further diminished this month as the administration begins to readjust U.S. trade policies toward China.

During an Oct. 4 speech, U.S. Trade Representative Katherine Tai outlined the Biden administration's next steps in the U.S.-China trade relationship, which includes keeping in place — for now — the Section 301 tariffs levied by the Trump administration on more than $350 billion worth of Chinese goods.

The prolonged tariff reality means parts makers are once again evaluating their supply chains and strategizing ways to mitigate any impact. But a sliver of hope remains as the administration considers reinstating a targeted tariff exclusion process for imports from China, and companies see a potential opening for negotiations, trade experts say.

The Office of the U.S. Trade Representative is seeking public comments through Dec. 1 on whether it should restore previously extended exclusions on 549 import product categories, including some auto parts. Most of those exclusions expired last year.

"It's a good start, and companies are hopeful that it is just a start," said Mark Tallo, a member of the import and export practice group at Sandler, Travis & Rosenberg's Washington, D.C., office. The firm represents companies at various levels of the automotive supply chain.

Another expectation, Tallo said, is that this will be the start of a broader process to look at more product exclusions that were granted by the previous administration and open a new process to request exclusions for other products.

"The hope is that under the Biden administration the exclusion process will be a little more transparent, and you will get a better understanding as to why products are excluded and others are not," he told Automotive News.

In her remarks, Tai said she will "keep open the potential for additional exclusion processes, as warranted" — a source of optimism for groups such as the Motor & Equipment Manufacturers Association, which continues to urge the Biden administration to open an exclusion process for a broader range of products.

"That doesn't automatically mean that no tariffs will be paid, but it allows manufacturers and importers to make the case of why there should be an exclusion on a specific product," said Ann Wilson, MEMA's senior vice president of government affairs.

While the association welcomes the reenergized efforts to confront Beijing over its trade practices, treatment of intellectual property and other concerns, the list of 549 exclusions being considered "does not include the wide range of motor vehicle goods that are subject to the tariffs," Wilson said.

"We think that tariffs are a tool, but they should not be seen as the only tool to address American competitiveness," she said.

The US-China Business Council — a private nonprofit group made up of more than 200 American companies that do business with China, including General Motors and Ford Motor Co. — also said it would prefer a broadening of tariff exclusions that includes more imported auto parts.

GM CEO Mary Barra is vice chairman of the council's board of directors.

"Our members want the tariffs lifted," Doug Barry, a spokesman for the council, said in a statement to Automotive News. "We understand the administration's need for leverage … but believe tariffs don't provide much, if any. Instead, they are a tax on U.S. businesses and consumers that, if ended, would be a boost for the economy."

Under the Trump administration, the U.S. trade representative denied about 46,000 — or 87 percent — of the 53,000 exclusion requests it received from 2018 to 2020, primarily for failure to show the tariffs would cause severe economic harm to the company or other U.S. interests, according to a July report by the Government Accountability Office.

The U.S. trade representative also did not extend a majority of the tariff exclusions it granted, the report found.

But according to U.S. trade officials, "no one factor was essential to grant or deny a request."

The report recommended the trade office fully document the internal procedures it uses to make exclusion and extension decisions, as companies and Congress have questioned the transparency and fairness of the process.

Several industry companies, including interiors supplier Yanfeng, top Toyota supplier Denso Corp., as well as suppliers Robert Bosch and Lear Corp., had multiple exclusion requests denied by the Trump administration, according to a public docket. Yanfeng, Denso, Bosch and Lear declined to comment for this article.

U.S.-based divisions of Magna International also had several requests denied, including one for a rearview mirror monitor that it said is only available in China. The Canadian parts maker said it supports the administration for initiating a review of the 549 product exclusions, with the anticipation that more products will be added.

"We hope that the administration will expand the scope in the very near future by restarting the exclusion process to include all products on all of the Section 301 lists and by addressing the issues of the past exclusion procedural process," Magna spokeswoman Tracy Fuerst said.

For now, companies are evaluating ways to eliminate and mitigate the tariffs, "expecting that they will be in place for likely a longer amount of time than originally expected and looking at it as the new normal," Sandler, Travis & Rosenberg's Tallo said.

A big portion of the U.S.-China auto parts trade is aftermarket, according to Kristin Dziczek, senior vice president of research at the Center for Automotive Research in Ann Arbor, Mich.

"If people are holding on to their vehicles longer, then we're buying more fuel filters and water pumps" and other parts that China makes for vehicle maintenance and repair, she said.

For Standard Motor Products, a manufacturer and distributor of auto parts in the aftermarket industry, the cost of Section 301 tariffs has been about $20 million annually — roughly 2 percent of revenue, CEO Eric Sills told a House panel this month.

The Long Island City, N.Y., company was able to secure about $2 million in exclusions, Sills said, but had several other requests denied.

"Over time, we want to engage in more U.S. sourcing, but that cannot be done immediately and should not necessarily be done for mass-produced commodity inputs that we cannot manufacture on a cost-effective basis in this country," Sills said in his testimony.

The company is urging Congress to restore full Section 301 exclusions and ultimately phase out the tariffs.

China continues to fall short on its commitments to purchase $200 billion of additional U.S. goods and services under the Phase One deal negotiated by the Trump administration.

"Even if the Biden administration changes its tenor and its tactics and its language, I don't think China is showing any signs of wanting to change its behavior," said Michael Dunne, CEO of consultancy ZoZo Go and an expert on U.S.-China auto dealings. "That's an important reality."

While the rhetoric and tone toward China may have changed under Biden, Christine McDaniel, a senior research fellow at George Mason University's Mercatus Center, said "the actual policy has changed very little."

As the administration pursues a worker-centered approach and strategizes ways for U.S. companies to be less dependent on China, McDaniel said she expects the U.S. trade representative will still be "very strict" in its decision-making process for companies seeking exclusions.

If there's any chance a product could be made in the U.S., or a manufacturer could be sourcing from another country, then the exclusion is "likely to be denied," McDaniel said.

"That's, I think, where a lot of industry watchers are focused on right now," she said. "What's going to happen as these tariffs remain?"