Auto Manufacturers Adjusting Supply Chain To Avoid Tariffs

Auto Manufacturers Adjusting Supply Chain To Avoid Tariffs

Amid strict tariffs implemented recently under the current administration, auto manufacturers who currently import parts from overseas are scrambling to re-adjust their supply chains to remain soluble. Daimler and Nissan have both issued statements showing their intent find local sources to fulfill their needs.

The new trade agreement requires a higher percentage of parts used in the composition of vehicles to be produced in the US, Canada, or Mexico to avoid tariffs ranging from 2.5 percent up to 25 percent. More detailed investigation into the countries of origin have drastically reduced the amount of Chinese goods being filtered through Mexico.

Another issue confronting manufacturers involves the labor provisions involved in the agreement. It states that 40 percent of the parts and labor comprising the end product's value must be using wages of at least $16 per hour. This was a massive shock to companies such as Nissan, who were paying significantly less for their materials obtained from Mexico. 

This gives little recourse to car makers operating in the US, Mexico, and Canada. Really only two options are viable. The first is to pay parts manufacturers more and absorb the costs. The other is to use the least expensive parts globally, take the tariff head-on, and possibly risk upsetting a volatile US administration. This is assuming that the final agreement will be ratified by all three countries, which looks likely to happen this month.

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Written By: Todd Hendrickson
Source: Forbes