Trump’s trade war with China may hit parts of your car first

Bloomberg

The US-China trade war threatens to make September a very slow month at ED Opto Electrical Lighting Co.’s auto-parts factory in the eastern Chinese city of Zhenjiang.
With President Donald Trump slapping tariffs on items like car gaskets and ignition wiring sets in July, American buyers of the company’s LED car lights pushed hard over the summer to get their orders delivered early in case they got caught up in the next salvo. Now, with the US poised to target another $200 billion of Chinese goods as soon as this week — including the car lights made by ED Opto — export manager Melissa Shu wonders what’s going to happen to the business.
“If the tariffs are implemented, we’ll have trouble selling our products,” Shu said. “Customers might ask us to reduce our prices but the cost of raw materials has been soaring.”
As relations between the US and China deteriorate, small suppliers like the car light manufacturer and their US customers are being caught in the middle. Auto-parts makers were already grappling with spikes in the cost of steel and aluminum, and now the trade war is threatening to upend an industry that’s become increasingly dependent on the US. China’s exports of auto parts to the US increased almost 18 percent between 2012 and 2017 to hit $17.6 billion last year, according to data from the US Commerce Department.
Companies such as ED Opto, which has only 125 employees and exported about $7.3 million in parts last year, are in the direct line of fire. Further down the supply chain, David Ni’s company buys aluminum alloy wheels from Chinese makers and exports them to retail outlets in the US. He’s weighing whether to give up some of its thin profit margin to hold onto customers. The company will likely raise its prices as much as 5 percent at the same time.
“The US is the largest auto-parts-market in the world,” said Ni, chief executive officer of Jiangsu Siborui Import and Export Co., which employs 30 with $3 million in sales.
“It’s irreplaceable.”
The company also began operating a US subsidiary in Anaheim, California last year.
The company’s wheels are premium items, and Ni said he fears that tariffs will curb demand for them. Many auto parts come from the small and medium-sized enterprises that have been the backbone of China’s industrial ascent and are the workshops of the global manufacturing supply chain. Small and medium-sized businesses account for more than 60 percent of China’s GDP and private enterprises, mostly SMEs, made up 47 percent of exports in 2017, according to government data.

Growth at Risk
Before talk of a trade war started, Chinese auto-parts makers exporting to the US had reason to be optimistic about 2018. They exported about $9.8 billion to American customers in the first six months of the year, almost 13 percent more than the same period a year earlier, according to US Commerce Department data.
Now that growth is at risk. Windshield wipers, bumpers, mufflers and car seats are among the list of products published by US Trade Representative Robert Lighthizer in early July that the US plans to penalise next.
That’s bad news for the Chinese producers, who can do little to stave off an increase in costs for buyers. Janny Zhou is an export manager at a Chinese maker of auto-engine parts with 200 employees in the eastern city of Taizhou. Most of Zhou’s US customers who usually place recurring orders every month didn’t put in for deliveries in August, she said. That’s added more pressure, as the company is already facing higher tariffs on some of its products that were targeted in the first round of US levies.