DWI – The Tariff Trade War

Escalating the Tariff Trade War

Auto parts could be hit with another 25%

As of September, another round of tariffs (or import taxes) on Chinese goods will be hitting the US. Will it affect you? In a word: possibly, but things are a little more complex than that. According to Bloomberg, nearly 70 billion dollars worth of auto parts are exported from China each year in the form of replacement and new vehicle parts each year.

To the relief of many however, auto parts were exempted from the 25 percent tariffs that were levied on 122 pages worth of products this last May, when the trade war swung into aggressive action.

The key thing to remember about the current state of affairs is that auto parts have been exempted so far from tariffs, but as we know, things can change.

Back in May, it was announced that Trump was considering a 25 percent tariff on Chinese-sourced auto parts, which would have quite an impact on the auto industry (including diesels). However, this decision was put off for 6 months.

Many of the tariffs that were (or are) being considered didn’t go into effect until September, while others are still being put off until December so as to “not impact the holiday shopping season.” You hear that? Buy your truck gifts now.

Are the tariffs coming?

On a more serious note, tariffs can seriously cut into the profit margin of parts that already may have a lean margin, so there could be trouble on the horizon. One of the few fortunate aspects of the trade war however is that virtually every one has heard about it, via the Internet, newspapers, or TV, so consumers will most likely understand if some (or all) of the expense is passed along to them. Keep in mind that many parts from China are half the cost of many OEM parts, so they’ll still be the most inexpensive option.

One of the biggest impacts of the current tariff is actually manufacturers, as steel and aluminum have both been slapped with additional tariffs. Auto makers have a double whammy, because China has also imposed tariffs on vehicles and parts imported from the US at levels up to 25 percent. Some parts and vehicles are taxed less, but all have additional fees.

It’s normal for countries to have tariffs, but with US auto parts dealers already having to pay a 27.5 percent fee on most Chinese-sourced goods, an additional 25 percent seems a little extreme.

What to do about them

We talked to a number of shops about the price of parts and if they’re on the rise, and the answers we received were mixed. “Yes, prices have gone up, but they always do,” noted one shop owner.

Another repair shop noted that a lot of items like injectors were “…something you probably shouldn’t be getting from China anyways.” The same was said about turbochargers, intercoolers, and other diesel-specific items. Where the impact will be seen the most is on the nickle and dime items that consumers will need for diesels, which will most likely be passed along by shops to customers.

If you still find your shop strapped with rising costs, there are other ways you can make up for increases in pricing. Marking up other parts, shipping, or increasing labor rates (by maybe as little as $5 an hour) are all small ways of recouping costs as tariffs become more extreme. For many though, it’s just the “cost of doing business,” and they’re just hoping that the cost doesn’t spiral out of control.