Auto parts represent a significant part of the $200 billion worth of Chinese goods that are now under tariff. So what happens to the global auto parts supply chain if the tariffs continue for a protracted period…

At the end of September, the Trump administration began to impose Section 301 tariffs on billions of dollars of Chinese-sourced auto parts, an initial 10% duty that will increase to 25% on January 1, 2019. This action impacts thousands of companies, threatens hundreds of thousands of American jobs and wreaks havoc on the global supply chain that supports an enormous industry. The steep import duties affect everything from shipping lanes to auto repair shops, with increased costs being passed up and down the chain.

Washington is also examining an additional 25% tariff on imported vehicles and auto parts the Trump administration has threatened under the guise of national security. These Section 232 tariffs are similar to the duties the administration levied on steel and aluminum earlier this year. And Trump is threatening to slap duties on all Chinese imports that have so far avoided tariffs.

Uncertainity in the Supply Chain

“Probably the hugest uncertainty is how to build your supply chain because no one really knows how this will play out in the future or when these tariffs will begin or end,” said Aaron Lowe, senior vice president of regulatory and government affairs at the Auto Care Association, the trade group that represents the aftermarket auto parts industry.

Auto parts represent a significant portion of the $200 billion worth of Chinese goods Trump slapped tariffs on. The US imported last year almost $13 billion worth of Chinese auto parts, although not all are subject to the new duties.

Some auto parts suppliers have been caught out already. Lowe cited one importer of cabin air filters. When the shipment left China, there were no extraordinary duties. By the time the ship reached the US, the tariffs had already gone into effect, costing the company “a huge amount of money,” he said.

According to automotive parts industry consultant Steve Hughes, the lead-time for a Chinese manufacturer to produce a particular part typically takes anywhere from 90 to 120 days from receipt of order. Add to that time two weeks for the goods to cross the Pacific, plus several days for transit from a terminal to a warehouse or facility. “With an aftermarket company, you’re hoping you can get three turns of your inventory in a year,” Hughes said.

A steep rise in container shipping rates across the Pacific has already hurt auto parts importers, as it has importers of many other goods from China. The cost of shipping a container from China to the US has doubled since the end of April. That’s because demand for space on container lines skyrocketed. There was a rush to bring products into the US and stock up on inventory to gain both a price and strategic advantage over competitors. Importers of…