The Motor & Equipment Manufacturers Association (MEMA) has issued a statement in support of tax reform that promotes U.S. manufacturing competitiveness, job growth and productivity; however, the association says a Border Adjustment Tax (BAT), as currently outlined in the House Republican tax reform blueprint, will not help the U.S. achieve those objectives.
According to a study MEMA recently commissioned by The Boston Consulting Group to quantify the impact a BAT would have on the motor vehicle supplier industry, the negative effects of a BAT could be immediate and cause ripple effects throughout the U.S. economy.
Among the most alarming effects, according to MEMA, would be a significant loss in U.S. manufacturing jobs. Reduced consumer spending power would force vehicle manufacturers and their dealers to work to decrease prices by forcing costs downward on suppliers. As a result, vehicles would be “de-contented” with fewer parts, including advanced safety features and driver-assist technologies such as lane-keeping functions and emergency braking systems. Supplier content per vehicle would drop 3 percent, impacting supplier volume and placing up to 45,000 manufacturing jobs at risk.
“President Trump has said that he wants to increase jobs in America and put forward tax reform that is in the best interest of American businesses, consumers and workers,” said MEMA President and CEO Steve Handschuh. “We believe reforming tax rates, combined with workforce, trade, infrastructure and technology initiatives will promote U.S. growth and innovation in the supplier industry and across the U.S. economy. But this data shows that a BAT would put a large number of jobs at immediate risk.”
The study also shows that the imposition of a BAT would increase costs for suppliers and vehicle manufacturers and result in higher vehicle prices for consumers – an average of $1,800 per vehicle – leading to a decline in vehicle sales.
Motor vehicle component manufacturers are the largest employer of manufacturing jobs in the U.S., contributing nearly 3 percent of the U.S. gross domestic product. Suppliers directly employ more than 871,000 Americans, up 19 percent since 2012, and generate a total direct and indirect employment impact of 4.26 million jobs, up nearly 18 percent since 2012. This job growth is made possible by a highly integrated North American supply chain that supports both the automotive makers and the companies that supply motor vehicle parts. Many suppliers located in the U.S. import and export vehicle parts and components within the North American market. Depending on supply chain logistics, parts are often exported to be combined with other parts, then imported back to the U.S. for final vehicle assembly.
MEMA’s full comments can be viewed here.
In January, MEMA released an economic impact study that clearly defines the critical role motor vehicle parts suppliers play in the U.S. economy. The motor vehicle component manufacturing industry in the U.S. has experienced robust growth due to increased demand and vehicle sales. The stability and integration of the North American supply chain has been particularly beneficial to suppliers, contributing to growth in jobs and investments in the United States. MEMA says it supports reasonable tax reform that will allow this trend to continue.