Participating executives at the Consumer Electronics Show (CES) in the United States have indicated that global automotive suppliers are considering how much capacity can be shifted to the United States mainland to align with President Trump’s tariff policies and further reduce reliance on Chinese supply chains.
The automotive industry has endured eight years of U.S. protectionism, starting from Trump’s first term tariffs to the measures taken by the Biden administration, including proposals to ban the use of Chinese software and hardware in internet-connected cars, most of which directly target Beijing.
However, Trump’s proposed tariff policies will go further by adding a flat 10% tariff on all goods imported into the US and imposing a 60% tariff on Chinese goods. In late November last year, Trump also mentioned the possibility of imposing a 25% tariff on imports from Canada and Mexico.
These high tariffs make it challenging to fully pass on the costs to consumers and result in many automotive components produced in low-cost markets losing price competitiveness. For China, this could make their products nearly impossible to sell in the U.S.
Bosch, the world’s largest automotive component supplier, is contemplating various scenarios in response to these tariff policies. Paul Thomas, the President of Bosch North America, mentioned that they have already started considering several strategies even before Trump took office.
During an interview with Reuters at the CES, Thomas provided a hypothetical example, saying Bosch is exploring the shift of production for electronic control components for General Motors from markets like Malaysia to Mexico, Brazil, or other existing facilities.
He added that Bosch, along with other suppliers and automakers, will wait until after Trump’s inauguration on January 20 to make “significant decisions” based on the actual circumstances.
In his first term, Trump had warned of potential tariffs on specific countries or individual automakers to push them to increase their production in the U.S.
For example, in early 2017, when Toyota announced plans to produce Corolla models for the U.S. market in Mexico, Trump tweeted, “No way! Build plant in U.S. or pay big border tax!” Shortly after, Toyota and Mazda announced a joint plant in Alabama with an investment of $1.6 billion.
Amid the COVID pandemic, major suppliers are localizing production to address U.S. protectionism and mitigate risks associated with large-scale supply chain disruptions to avoid component shortages or tariff-related challenges.
With the passing of the Inflation Reduction Act (IRA) by the Biden administration, this localization trend has accelerated. The law has encouraged many suppliers to increase investments in the U.S. to access electric vehicle subsidies.
Nikolai Setzer, the CEO of Continental (the tire division of the Continental group), mentioned that after years of local production, they believe the impact of Trump’s tariffs on them is relatively minimal compared to other companies.
However, the German transportation component manufacturer is still exploring alternative local components to avoid tariffs. Setzer stated that they would proceed with further localization if it makes sense for the company.
Honda’s annual production capacity in Mexico is around 200,000 vehicles, with 80% exported to the U.S. market. Noriya Kaihara, Executive Vice President of Honda, mentioned at a CES meeting that they may need to consider changing production locations based on tariff levels, possibly from Mexico to Japan or elsewhere.
The possibility of high tariffs on Chinese goods has prompted suppliers to seek alternative supply chains. Panasonic Energy, which supplies electric vehicle batteries to Tesla, is shifting more supply chains to North America.
Allan Swan, the North America President of Panasonic Energy, told Reuters that in response to the incoming Trump administration’s new policies, the company’s first priority is to “steer away supply chains from China.”
He mentioned, “We do have some suppliers in China, but not many, and we plan to reduce our reliance on these suppliers in the future, a process that is already gaining momentum.”
Panasonic Energy has a factory in Nevada, U.S., and plans to open a second facility in Kansas this year.