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Richard Smallwood: Tariffs have ‘adverse economic consequences’

WASHINGTON — Nearly 50 witnesses from various corners of the U.S. vehicle industry gave an overwhelmingly negative view July 19 of the Trump administration’s proposed tariffs on imported autos and auto parts at a hearing before the U.S. Department of Commerce.

Among the witnesses were Richard Smallwood, CEO and president of Sumitomo Rubber North America Inc. — the only tire company executive to appear at the hearing — and representatives of the Auto Care Association (ACA), Motor & Equipment Manufacturers Association (MEMA) and the Specialty Equipment Market Association (SEMA).

Imposing tariffs on imported vehicles and parts would only harm the domestic auto industry, said Mr. Smallwood and a host of experts representing foreign and domestic auto makers, auto parts manufacturers and distributors, auto dealers and foreign governments.

Commerce Secretary Wilbur Ross hosted the hearing two months after announcing that his agency would investigate imported autos and auto parts under Section 232 of the Trade Expansion Act of 1962.

Under Section 232, the president may take action against any imported goods that threaten national security by eroding the economic status of a U.S. industry.

In his May 23 statement, Mr. Ross said there was evidence that vehicle and auto parts imports had been hurting U.S. industry for decades.

“The automobile industry continues to drive American innovation,” Mr. Ross said in his opening remarks at the July 19 hearing. “It provides the backbone of our industrial economy.… We are carefully examining all of the information that you are providing and that our analysts are gathering.”

According to Mr. Smallwood and other witnesses, however, even a cursory examination would show tariffs to be unnecessary and harmful.

“Tariffs on imported tires would have some combination of two adverse economic consequences,” Mr. Smallwood testified. “They will increase the cost of these critical components to the U.S. auto makers and retailers that the Sumitomo Rubber companies serve, or they will decrease the profit that we receive.”

Sumitomo knows of no tire manufacturers advocating for tariffs, he said, and no government or other evidence showing that tire imports threaten national security. Sumitomo imports some tires from Japan, Thailand and Indonesia, all close military allies and security partners of the U.S., he said.

“Seen in its full strategic context, I just cannot see how Sumitomo Rubber’s engagement with the United States — both through U.S. investment and imports — could have any conceivable negative impact on U.S. national security,” he said.

Sumitomo employs more than 1,600 workers at facilities in seven states, Mr. Smallwood said in his testimony. The tire maker is investing roughly $80 million in its sole U.S. tire plant, in Tonawanda, N.Y., to increase capacity to 15,000 tires per day by 2020, and eventually plans to more than double U.S. production in the coming years.

Tariffs, he said, only would harm U.S. auto makers and tire consumers and would undermine Sumitomo’s investments in the U.S.

Although Mr. Smallwood was the only tire executive to testify at the hearing, other tire company presidents and CEOs made their opinions known to the Commerce Department.

Mr. Smallwood was one of seven top tire executives who signed a June 29 prehearing letter to Commerce opposing tariffs on imported tires and auto parts.

“The tire industry is currently under siege from existing trade actions, and any additional tariffs on imported tires would severely weaken our companies, suppliers and customers,” said the executives, who, besides Mr. Smallwood, included Bradley Hughes of Cooper Tire & Rubber Co., Scott Clark of Michelin North America Inc., Hosung Suh of Hankook Tire America Corp., Harry Choi of Kumho Tires U.S.A., Iori Suzuki of Toyo Tire Holdings of Americas Inc. and Jeff Barna of Yokohama Tire Corp.

In a separate submission to the Commerce docket, Mr. Clark noted that Michelin employs 16,000 in seven states and has had business ties in the U.S. since 1907.

“The tire industry is unique because it lacks ‘dimensional flexibility’ — i.e. one factory is not capable of producing all tire dimensions,” he wrote. “Currently Michelin U.S. is exporting approximately the same volume of tires to Germany as Michelin U.S. is importing from Germany.”

The ACA, MEMA and SEMA agreed with tire makers that Section 232 tariffs would be disastrous for any company associated with the auto industry.

ACA President and CEO Bill Hanvey noted that the auto industry operates on a global platform, and that products in that industry are rarely designed, manufactured and consumed in the same country.

“Because sourcing determinations are made months and years in advance, even minimal adjustments to tariffs would require a significant investment and would force our members to modify our supply chains, find new sources for parts, and likely face new capacity or quality issues,” Mr. Hanvey said.

Manufacturers would raise cost to consumers as the result, and many consumers might delay critically needed vehicle maintenance because of that, he said.

The week before the hearing, MEMA surveyed its auto original equipment supplier members on the potential impact of tariffs on their businesses, MEMA Senior Vice President Ann Wilson said in her testimony.

“Almost 80 percent of the respondents said that a 20-percent tariff on imported automotive parts would have a net negative impact on their businesses,” Ms. Wilson said.

“Respondents indicated that they would cut U.S. jobs, cut or delay U.S. R&D investment, shift production outside of the U.S. and/or modify sourcing,” she said.

Most of the job cuts would occur within the first six months after tariffs were imposed, while investment and sourcing decisions would happen throughout the first year and beyond, according to Ms. Wilson.

Daniel Ingber, SEMA managing director, government and legal affairs, spoke of the unique status of the specialty motor equipment market.

“Today, a significant segment within the (auto) industry is tied to products for collector cars — a symbol of America’s love of cars,” Mr. Ingber said.

“Given the nature of the specialty parts market, there is no nexus between the manufacture of specialty equipment aftermarket parts and national security,” he said.

“The specialty parts market is comprised mostly of small businesses and does not implicate the industrial capacity of this country,” he said.

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