Auto industry needs time, consistency to manage Trump tariffs

Chicago — There's plenty keeping the automotive industry up at night, but when it comes to concerns, tariffs are typically top of mind.

That's also true for Kristin Dziczek, a policy advisor with the Federal Reserve Bank of Chicago, who is monitoring the impact that the tariffs could have on automotive OEMs and their supply chains.

"The big concern I have right now is for suppliers," Dziczek said during MEMA's Aftermarket Suppliers Vision Conference in Chicago on April 2. "The effect of the uncertainty and the almost inevitable rise in costs that you will be facing, supplier margins just aren't there to handle a lot of this. … You see those stacks of tariffs of 65, 85 percent—nobody has margins like that. The system cannot handle this in a rapid-fire way. And while having more domestically produced parts and cars is an admirable goal, it takes time, and this adjustment will be difficult."

Some in the auto supply industry got a reprieve on at least some of those tariffs April 9, when President Donald Trump hit pause on the reciprocal tariffs for most countries, with the exception of China, for a period of 90 days. Auto tariffs, as well as steel and aluminum tariffs, are still in effect, however, so there is plenty of uncertainty for suppliers. But the most at risk from the tariffs, Dziczek said, are the smallest suppliers, many of whom are just getting their footing after the pandemic.

"My main concern," she said, "is for suppliers, especially smaller suppliers. And that is where employment is, it's where a lot of economic activity is."

For now, though, all the industry can do is prepare and respond as best it knows how. And when it comes to how suppliers should react, Todd Campau, associate director of aftermarket solutions for S&P Global Mobility, recommends a steady, long-term vision kind of approach.

"You can't be paralyzed by uncertainty, but you also can't be reactionary," Campau said at the MEMA conference. "I think whatever moves you are considering need to be moves that are good for your business now and good for your business in four to five years."

One thing that makes navigating the tariffs so tricky is not just how steep they are, it's how quickly they are coming into force. Trump's tariffs—and the subsequent retaliatory tariffs—are hitting hard a supply chain that has taken decades to refine.

"We have been working on the integrated supply chain between the North American countries for about 50 or 60 years now," Campau said. "We believe it has reached a reasonable level of being optimized already. The concern is that that could be destroyed."

What the automotive supply chain—and industry over all—needs, Dziczek said, is something that the Trump administration and others so far haven't given: enough time.

"This takes time, and when tariffs are on again, off again, or when they are on immediately … this is not enough time to adjust," Dziczek said. "Adjustment time and certainty is what is needed."

Another thing the supply chains need to meet the administration's vision for U.S.-made parts and vehicles is consistency. The industry has, after all, proven it can adjust when consistent policies are in place and time is allotted for meeting those policies.

In fact, Dziczek said, the industry has just recently made a significant adjustment.

"We saw in the first term of this president, a directive—I would say—to the auto industry to get out of China. And if you look at pre- and post-USMCA, China auto parts sourcing overall was down about 15 percent. Mexico was up 7 (percent), Canada was down 3 (percent)," Dziczek said. "But then we saw huge growth in India, Taiwan and Thailand. The suppliers that I talk to say, 'we got the message: Get out of China.' And that was durable through the Biden term as well.

"Now the message is: 'Get out of everywhere and come back home.' How durable is that?"

One major philosophy driving Trump's tariff strategy is the aim to bring more production to the U.S. For auto makers, that's a tricky proposition, given the time, energy, funding and resources that are necessary to build and open manufacturing plants.

There is some wiggle room for auto makers, Dziczek noted, pointing out that the U.S. has about 1 million units of underutilized capacity. But even that bright spot comes with a caveat. Namely, production is siloed—meaning not every auto maker has the room it would need to expand the production to the degree it requires.

"You'd have to get a bunch more people excited about buying Rivians because not anyone can make Jeeps in a Rivian plant," Dziczek said.

Trump's vision also would mean bringing a lot of the supplier manufacturing to the states. And while admirable, Dziczek says that's much easier said than done.

"Bringing back the supply base is more challenging," she said. "There are work force challenges, there are capital challenges, and then there are some things that just don't make sense to make here. They are not made here and it doesn't make sense to bring, say, wire harnesses back to the U.S."