The car audio industry has paid handsomely under the tariffs imposed by the Trump administration. Suppliers estimate the industry paid tens of millions of dollars in tariffs on products from China last year.
Many car audio companies are hoping for relief under the Biden administration, but that may not happen any time soon, says Sage Chandler, VP International Trade, Government Relations at the Consumer Technology Association (CTA).
The current administration has already stated it won’t take any action on China for 100 days as it conducts a review.
Chandler notes, “To see tariff removal, the administration at a minimum is going to have to get something for it. They can’t be viewed as weak on China. While I think this administration will have more empathy for the companies and the broader picture on supply chains, they are going to be in a difficult position. To just take tariffs away without getting something in return—I don’t see that.”
She adds, of course, China might come to the US and say “We’re ready to strike a deal.”
Additionally, there is a lawsuit underway at the Court of International Trade alleging that the $200 billion worth of List 3 tariffs levied on Chinese goods violates The Trade Act of 1974, which, “did not confer authority on the Defendants [US government] to litigate a vast trade war for however long, and by whatever means, they choose.”
The case was brought against the US and the Office of the US Trade Representative and other US agents, by a $700 million flooring company called HMTX Industries and two companies it owns– Halstead New England Corp. and Metroflor Corp. HMTX overall employs 150 people and its flooring and vinyl flooring products fall under List 3 tariffs.
The case, Court No. 20-00177, states that the US Trade Representative (USTR) originally found that there was a $50 billion trade imbalance with China and, as permitted on the Trade Act, the US levied tariffs to that amount. Under the law any tariffs resulting from the USTR investigation must be determined within 12 months. But List 3 and List 4 were issued after that window.
The case says, “Section 307 of the Trade Act does not permit USTR to expand the imposition of tariffs to other imports from China for reasons untethered to the unfair intellectual property policies and practices it originally investigated under Section 301 of the Trade Act. Yet that is exactly what Defendants did here when they promulgated the List 3 duties in response to China’s retaliatory duties and other unrelated issues. And even if USTR deems the existing tariffs ‘no longer appropriate,’ as it also did here, the Trade Act permits USTR only to delay, taper, or terminate—not ratchet up—the actions it has already taken.”
Arguments on that case begin in April, according to Chandler, who said about 4,000 companies have joined in on the suit. If the case is won, the US might decide to go along with the verdict rather than appeal. Such a verdict might provide the needed political cover, she speculated.
In another trade issue, the exemptions from tariffs granted to some companies expired on December 31, and Congress has yet to extend them.
To understand what the tariffs are costing car audio makers, some are losing 25 to 30 percent of their amplifier and head unit profits. Some are paying a 7.5 percent fee on the speakers they sell. And others are paying 25 to 30 percent on Advanced Driver Assistance Systems (ADAS).
Many ADAS products, including backup cameras and sensors can carry up to a 30 percent tariff from China. “In ADAS you can’t move out of China. There aren’t the factories to build it outside of China at those prices. If it’s built in Japan, there’s going to be a big increase just in labor,” said one executive.
Yes, suppliers can raise prices and pass on the costs to consumers, but some suppliers are loath to raise prices for competitive reasons.
One mass merchant supplier said, “We’re paying 25 percent on Bluetooth items and in-dash. It has been a huge impact. We’ve absorbed a lot. When you add 25 percent to an opening price brand….We had to absorb it.”
Over the past few years, American business and citizens have been assessed at more than $85 billion in additional tariffs, according to the group Americans for Free Trade. The CTA is on the executive board of this group, which has petitioned members of Congress to remove the tariffs. A recent letter to Congress by the group stated, “Lifting the additional tariffs is a simple, straightforward way to provide an economic boost to American families, American workers, and American businesses and to help ensure a successful economic recovery.”