A typical car has 30,000 parts from nuts, bolts, and screws to the engine block.
Pat D'Eramo, CEO of Martinrea International, Inc., an auto parts supplier, knows this better than most. He also knows that many of those parts and components pass international borders before they make it into a finished automobile you can drive off the lot.
In fact, it’s “typical” for parts and components to pass international borders multiple times in this process, he says. That’s why he’s so concerned about tariffs.
Martinrea International has almost 3,500 employees in the United States and manufactures assemblies, modules, fluid management systems, and aluminum products for the Big 3 U.S. auto manufacturers (General Motors, Stellantis, and Ford Motor Company) at multiple locations in Canada, the United States, Mexico, and other countries. Those parts are integral to some of those manufacturers’ most popular automobile lines.
We recently spoke with D'Eramo about the possible impacts of tariffs on his company.
U.S. Chamber: How have U.S. tariffs affected your company?
D'Eramo: If these tariffs don’t normalize and reach a resolution so we’re not being affected—we won’t invest, we won’t be able to. The industry itself will become very disrupted and it wouldn’t make any sense to spend money until there’s some kind of normalization. It certainly is not going to inspire investment in the short term.
U.S. Chamber: Aren’t there carve-outs now for USMCA-compliant products? Doesn’t that mean that you’re exempt from these tariffs? Though of course there are so-called “reciprocal tariffs” threatened for April 2.
D'Eramo: The majority of our commodities comply with USMCA, but lots of our suppliers are getting hit by tariffs… Our customers [North American auto manufacturers] pay the tariff for steel through resale programs—maybe 80% of it, but we’re expecting to carry a pretty big burden if it continues.
And if USMCA is no longer on the table, it’s going to get very ugly, very quick.
U.S. Chamber: How many times do your products cross borders (Canadian, U.S., Mexican) before they are incorporated into a finished product/car?
D'Eramo: It’s not unusual for products to cross the border multiple times—it’s somewhat typical. Some products cross the border as much as five times before it goes to the customer.
The way the auto industry has grown over the years under NAFTA and then USMCA, is that the borders are like state lines… When you’re in Michigan, Canada is pretty close. It’s no different than sending it to Indiana.
Most of our parts are under the USMCA umbrella. If that didn’t exist it would be interesting to see some of the potential multiple tariffs imposed on products if Canada imposed retaliatory tariffs.
U.S. Chamber: How will your company’s American workers and investments be affected if these tariffs continue?
D'Eramo: First, you’ll see layoffs from disruptions within the supply base.
For example, if a supplier has a special product and they decide to not ship to the final customer because they don’t want to pay tariffs, the auto manufacturer can’t build. Now, thousands of other suppliers have to stop because the main assembly lines are not running. So, you have to lay your people off until you need them again, and they may not come back to work when you recall them.
And if the tariffs stay in place and we were all able to manage our supply bases, the cost of the products could go up tremendously. You’d have lower volume sales and so you wouldn’t need as many people because they’re not building as many vehicles. That would be the longer term potential.
U.S. Chamber: What would you say to the President about tariffs? And what would you want him to do?
D'Eramo: “I respect your grievances and that there are problems at the borders…
However, you’ve got to understand the details and the consequences of the action. The tariffs are too broad and will stifle everything. They have to be much more strategic.
If you want the U.S. to be re-industrialized which I agree with—the U.S. can’t do it alone in this day and age. The U.S. needs resources and cooperation. So, in my view, Canada and Mexico can be great partners in that.”
