Loss of One Tariff Exclusion Could Cost Importers $95 Million This Year

For five months in 2018, it looked like Chinese injection molds were going to cost 25 percent more because of Section 301 tariffs, and the import volume from China in 2018 fell nearly 12 percent, to $385 million. Overall imports of injection molds -- which were valued at $1.8 billion in 2018 -- rose 5 percent that year.

According to the American Mold Builders Association, domestic mold makers have $6.4 billion in annual sales and employ 35,000 workers with an average annual salary of $56,203.

In December 2018, importers were offered an exclusion on Harmonized Tariff Schedule heading 8480.71.8045, and that changed the pattern. Through October 2019, importers brought in almost $314 million in Chinese injection molds -- and if November and December proceeded at the same pace, that would be just a 2 percent decline from 2018.

When importers asked the Office of the U.S. Trade Representative to continue the tariff exclusion, they said that American shops didn't have the capacity to produce what they needed -- or were prohibitively expensive. Few addressed other exporting countries, such as Canada and Japan.

PacMold told USTR that they had moved some work to Taiwan, but that Taiwan's mold-making capability has shrunk over the last decade “as many shops have moved to China, where costs are lower.”

“The period of time since the exclusion was granted was not sufficient to set up an alternative supply chain,” PacMold wrote. “Allowing a previously granted exclusion to automatically expire, even though there is no change in circumstances, would be unfair, and a mistake.”

The USTR didn't see it that way. The tariff exclusions on the molds expired on Dec. 28 (see 1912190060), and importers will have to pay $95 million in Section 301 tariffs in 2020 if they import about the same amount from China as they did in 2019.

The five months in tariffs on Chinese molds didn't reduce the worldwide level of imports, but shop after shop wrote to USTR saying that the far cheaper Chinese molds had caused lost sales and layoffs in the 18 years since China was granted permanent Most Favored Nation status, and that they held out hope that putting a tariff on Chinese competitors would restore that business. One even produced a list of dozens of mold producers in their area that had closed. Some said that returning to a 25 percent tariff wouldn't be enough -- they recommended 100 percent, 200 percent, or even 400 percent. Others said that Canada had an unfair advantage (it is the largest source of imported molds, with $748 million through October 2019, and $912 million for 2018).

Elba Tool's Erich Elendt said that Chinese prices are 60 percent of his shop's price, so a 25 percent tariff is not enough. He also argued that “to avoid paying tariffs, they will artificially inflate the value of engineering costs.”

There were 28 companies that asked for the exclusion to continue. Stanley Black & Decker predicted that its sales would drop by 50 percent if the tariffs were hiked, due to the price increases in its products. Royal Appliance Manufacturing, which makes the Dirt Devil brand of vacuum, said some of its products have 60 molded plastic parts, requiring 60 molds, and said getting molds from any country outside China would be “unproven as a quality alternative.” Polaris, which makes boats and motorcycles, said it has tried other companies outside China, but “no supplier has been able to meet Polaris's required costs and lead times.” Polaris also complained about input costs rising from steel and aluminum tariffs. Decatur Mold, Tooling and Engineering said it takes two to three years to move tooling to a new company, and for retraining workers on the new molds.

However, there were 128 companies that asked for the tariff to return, with many saying they got requests for quotes during the fall of 2018 when it seemed like the tariff would be collected, but that after the exclusion came in, business got worse.

Superior Mold's Robert Earnhardt said, “The very day that this tariff was enforced we began receiving calls from customers I had not heard from in years.... We began quoting tooling for these companies once again.” But, he said, a customer that promised purchase orders changed its mind after the exclusion came through, and stuck with China.

Tri-Tech Tooling's Michael Bouma said the Holland, Michigan, shop had its best year ever in 2018, and then a 20 percent drop in sales in 2019, “which I can trace directly to the loss of work from the automotive industry” because the tariffs were lifted. But he said the parts makers he supplies warned him that if the tariffs were reinstated, auto parts makers will turn to India and Vietnam. Another mold maker that serves auto parts companies, TK Mold, said customers tell them they are pressured into buying cheaper imported molds by Ford, Nissan, GM, Fiat-Chrysler, “all of them.” TK Mold's Tom Barr said that when the tariff came in July 2018, “the phone rang off the hook, customers I hadn't heard from in years. It all stopped in December” when the exclusion was granted.

International Mold, in Michigan, had 120 workers before China started bidding 30 percent to 40 percent less than their bids in 2016 and 2017. “As I type, we are now down to 65 employees, and we had to close a facility and sell the equipment and building at a loss,” the company's comment to USTR said.