Trump and Aftermarket Trade March 2017

Transcription

1 Trump and Aftermarket Trade March 2017

2 Why Trump Focus on Trade: U.S. Trade Deficit Over Time $0 -$100 -$200 -$300 -$400 -$500 -$600 -$700 -$800 -$900 -$808 -$816 -$503 U.S. TRADE DEFICIT Billions $635 -$725 -$730 -$689 -$735 -$745 -$734 $7.1 Trillion in U.S. wealth transfer in last ten years Sources: Foreign Trade Department, U.S. Census Bureau 2

3 Why Trump Focus on Trade: Trump (Navarro/Ross) Economic Plan Fundamental structural reforms needed to take U.S. out of economic malaise Free and fair trade is a key focus They believe current trade unfair: bad trade deals, currency manipulation, backdoor tariffs, environment / labor regulations, non-tariff barriers and subsidies Tariffs not as an end game but rather a negotiating tool ; appropriate defensive tariffs to level the playing field Goal is to eliminate trade deficit to achieve other goals They believe eliminating trade deficit will: Create jobs Increase economic growth Projected increased growth would fund tax cuts (and defends entitlements) Focus on growing U.S. manufacturing Trump plan will disproportionally and quite intentionally help manufacturing How to deliver on jobs target: highest multiplier effect of any economic sector Many economists have concerns about the assumptions, concepts, and effectiveness of this plan 3 Sources: Scoring the Trump Economic Plan, by Peter Navarro and Wilbur Ross;

4 Why Trump Focus on Autos: 26% of deficit attributed to auto, engines & parts Sources: Foreign Trade Department, U.S. Census Bureau 4

5 Why Focus on Mexico and China: They account for 56% of U.S. Trade Deficit China Mexico U.S. Trade Deficit $347B $63B Share of U.S. Trade Deficit 47% 9% Sources: Foreign Trade Department, U.S. Census Bureau 5

6 Auto Parts a big piece of Mexico trade deficit; smaller piece of U.S. China trade story TOTAL US Trade Deficit U.S. Auto Parts Imports Auto Parts Trade Deficit Autos Parts % of Trade Deficit China $347B $16.8 $14B 4% Mexico $63B $52.7 $24B 38% 6 Source: U.S. Commerce Department,, Bureau of the Census, Foreign Trade Division; 2016

7 Case Study: China Aftermarket Parts are exposed to China U.S. trade issues China Parts Exports to U.S. Estimated Aftermarket Only Share Chinese Aftermarket Exports to U.S. $16.8B 70% - 80% ~$12.6B NOTE: Once you have markups along the supply chain, Chinese-made parts imports represent an estimated ~25% of aftermarket parts sold in the U.S. 7 Sources: U.S. Commerce Department, 2016; AASA estimates; AASA/AutoCare Joint Market Size Report

8 Case Study: Mexico Aftermarket Parts are smaller share but significant impact Mexico Parts Exports to U.S. Estimated Aftermarket Only Share Mexican Aftermarket Exports to U.S. $52.7B 15% ~$7.9B CHINA-MEXICO TAKEAWAY Including mark-ups along the supply chain, imports from just these two countries represent an estimated ~40% of aftermarket parts sold in the U.S. Sources: U.S. Commerce Department, 2016; INA,

9 Case Study: Impact on U.S. Customers 20% BAT could reduce profits by 44% PROFIT BEFORE BAT RETAILER A Cost of Parts Impact Share 70% 20% BAT $50 X.70 + X.20 = Cost Increase $8.50 PROFIT AFTER 20% BAT Notes: 1. Retailer profit impact would be offset by lower corporate taxes 2. Economic theory says BAT would be offset by currency adjustments (already seen 10% Mexican peso devaluation vs. US$) DECLINE IN PROFIT 44% 9

10 What the Heck is the BAT? Border Adjustment Tax or BAT Misnamed. More radical. Corporate income tax eliminated and replaced with a DBCFT a 20% destination-based cash-flow tax Border-adjustable like VAT taxing imports and exempting exports Affects imports from all countries May or may not be WTO-compatible Economists generally positive on tax reform concept More efficient, like VAT (actually better), versus income taxes Levels playing field (most U.S. trade partners have border-adjustable VAT) Ends U.S. exceptionalism U.S. no longer tries to tax overseas profits Economic theory says will not affect trade currency will adjust to offset Many members strongly dislike and think will mean price increases Necessary to fund tax reform if not, maybe no corp tax reduction 10

11 Questions and Discussion Starters What are your biggest questions on the Trump administration and what is going on at Capitol Hill? How much do you import to the U.S.? What will be the impact of potential BAT and/or tariffs be on you? What is your company s position on BAT and trade? What do you think? What do you think will be the outcome for Mexico-US and China-U.S. trade? Do you think that economists are right that the BAT is not a tariff and will not affect international trade, or do you think many businesspeople are right and it will result in higher prices? What effect do you think higher prices will have on the aftermarket? What solutions can the industry offer to help advance the administration s goal of increasing U.S. employment? If more nationalist economic actions are taken, do you think the aftermarket community will have to repatriate some of our industry? These questions will be addressed and discussed AASA s Vision Conference: 11

12 Thank you