WASHINGTON -- The Trump administration unexpectedly put a hold on steep 25 percent tariffs on injection molds imported from China in late December, a decision analysts say is likely to hurt American mold building companies but help U.S. plastics companies that supply automakers.
The announcement from the U.S. Trade Representative means that the 25 percent tariffs on injection molds -- imposed in July as part of the first round of $34 billion in duties on Chinese imports -- will be suspended for at least one year.
USTR did not explain its decision, but one attorney for the mold making industry said it may be a response to a flood of more than 200 requests from plastic injection molding companies, many in the automotive supply chain, to exempt their specific mold imports.
The USTR announcement is broader than molds, exempting about 30 different categories of imports from the tariffs. Molds are the largest plastics-related category.
"I believe they have had so many requests from companies seeking exemptions of molds from the tariff, that the government decided to exclude molds in their entirety rather than spending resources on each individual exemption request for a mold," said H. Alan Rothenbuecher, a lawyer for the Indianapolis-based American Mold Builders Association. "No one knows for sure why, but that is my opinion."
Rothenbuecher, a partner with the Cleveland-based law firm Benesch, Friedlander, Coplan & Aronoff LLP, said the ruling will hurt U.S. mold builders but help U.S. plastics companies that buy molds.
"There was and is strong support among the [U.S.] mold builder community for these tariffs," Rothenbuecher wrote in an email.
Plastics processors, however, said the higher costs from the 25 percent tariffs would be hard for them to absorb, causing significant problems in their already price-sensitive businesses.
Auto suppliers impacted
Many argued to USTR that since mold purchasing takes months and the contracts for these molds were signed before the tariff details were discussed, they could not plan for the 25 percent tariffs.
Plastikon Industries Inc., for example, asked for what it called a "one-time exclusion" for molds ordered from China in late 2017 for a project for a U.S. automaker.
"Due to the timing, significant size and technical requirements for the U.S. vehicle launch, however, the company cannot re-source the items of concern to a U.S. supplier," the company said.
It said a 25 percent tariff would "impart significant economic hardship," possibly forcing it to cancel the multiyear contract with the automaker and risking the jobs of 600 workers at one of its plants in Kentucky.
Other companies, including plastics housewares maker Keter U.S. Inc., made similar points, arguing that higher tooling costs would make its U.S. manufacturing less competitive and risk jobs.
Plastikon said it had taken steps to source more molds in the United States.
"We fully support the strategic objectives of shifting manufacturing to the U.S. and have already taken steps to source future molds from the U.S. and from fair trade countries," Plastikon told the USTR.
Automotive reaction
More than half of the requests for tariff exemptions came from injection molding companies in the automotive supply chain and argued that the tariffs would raise costs or slow down vehicle development.
Yanfeng U.S. Automotive Interior Systems LLC, for example, submitted more than 80 requests. Forteq North America Inc. submitted more than 20, and International Automotive Components Group North America Inc. and Faurecia U.S. Holdings each requested more than 10 mold tariff exemptions.
IAC -- which was founded by Trump's Commerce Secretary Wilbur Ross -- noted that its Chinese mold supplier is chosen directly by its customer, Ford Motor Co. IAC added that the U.S. mold making industry did not have capacity to meet its needs.
The Center for Automotive Research in Ann Arbor, Mich., said lifting the tariffs will help hold down U.S. car prices but hurt mold makers who supply the industry.
"It's good for autos; it's bad for domestic mold builders," said Kristin Dziczek, CAR's vice president of industry, labor and economics. "The mold industry in the U.S. is no better, no worse off than they were, but the protection from Chinese molds would have been beneficial."
While the automotive injection molding sector was vocal in complaining that tariffs would bite them, the U.S. mold making industry has clearly faced its own worsening trade picture in recent years.
The U.S. trade deficit in molds shot up from $1.14 billion in 2015 to $1.53 billion in 2017, the last full year figures are available, according to a recent report from the Washington-based Plastics Industry Association, which said the U.S. imports 3.5 times as many molds as it exports.
The mold trade deficit with China rose from $390 million to $498 million in those three years.
But industry trade data also suggests Canada may be the bigger challenger to the U.S. industry's trade picture.
U.S. mold makers consistently have their largest trade deficits with Canada. It reached $884 million in 2017, and that rose from $690 million in 2015, according to the association's report.
AMBA Executive Director Troy Nix said survey data collected from processors is now showing a trend toward more sourcing of molds in the United States. Nix added that the industry will be watching to see if eliminating tariffs on Chinese molds would slow or reverse that.
Rothenbuecher said getting rid of the tariffs on Chinese molds will "plain and simple" hurt U.S. mold builders, but he also said the U.S. government may have been concerned about signs of overcapacity in the American mold making sector.
Reaching capacity
"It has been reported that the U.S. mold building industry may be or is at overcapacity with the amount of work that has been directed back to United States mold builders," Rothenbuecher said. "That consideration may have played into why molds are now being exempted from the tariff."
Several U.S. injection molding companies argued that lead times are being stretched out for U.S.-built molds because the industry is at capacity.
Mack Molding Co., for example, said in its filing that it goes overseas when U.S. capacity is tight: "Due to the more recent robust economy, many of the domestic mold shops have had a workload that prohibits us from getting fast deliveries on tooling to support our customers, so we have the tooling built in China and fly the molds back to the U.S."
As well, custom injection molder Sajar Plastics told USTR it faces long lead times for tooling in the U.S. and is currently having 28 molds built in China.
"U.S. tool shops typically take 18-20 weeks for each tool build," Sajar wrote. "Many of the tools we currently have in China are ready to ship within the next four weeks and be in production in the next 10 weeks."
USTR said that the tariff exclusions would be retroactive to the original July 6 tariff announcement and would run until Dec. 28, 2019, one year past the official publication of the exclusions in the Federal Register.
What happens after that is not clear, but some industry observers said they could be extended.
Audrey LaForest and Bill Bregar contributed to this story.
