Tariffs, Taxes and the Trucking Industry

Episode 354: In this episode of The Heavy Duty Parts Report, host Jamie Irvine interviews Bill Frymoyer, Vice President of Public Policy at MEMA, to explore the impact of recent U.S. government policies on the heavy-duty trucking industry. They discuss the positive effects of tax reforms that encourage investment, but raise concerns over increased H-1B visa fees that hinder access to skilled labor, especially in engineering and technology. 

Frymoyer highlights the disruptive nature of rapidly changing tariffs, including new ones on steel, aluminum, and potentially heavy-duty trucks and parts, which threaten supply chains and competitiveness. The conversation emphasizes the importance of preserving trade to maintain strong economic ties between the U.S., Canada, and Mexico, and calls for balanced, common-sense policies to support innovation and stability in the trucking sector.

Links

·         MEMA.org 

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Transcript

Jamie Irvine

Welcome to The Heavy Duty Parts Report. I'm your host, Jamie Irvine. And in this episode, we're going to do a deep dive on tariffs and the impact it's having on the trucking industry in the United States, in Canada, and abroad. My guest today is Bill Frymoyer. He's the Vice President, Public Policy at MEMA. Bill, really happy to have you here. Thanks for coming on The Heavy Duty Parts Report.

Bill Frymoyer

Hi, Jamie. Thanks very much for the opportunity. Looking forward to it.

Jamie Irvine

Admittedly, there is a fair amount of criticism flying around about things that the current US administration are doing, but there are some positives that I think are very probably undisputed when it comes to the viewpoint of the business community. From your perspective, what is one of those positives that is coming from a lot of the decisions that have been made of the current US administration?

Bill Frymoyer

Well, this administration says they're really committed to the competitiveness of America. And on the tax side, they're getting policies right to do just that. They passed this one big, beautiful bill, which has you know, built upon the president's previous successes in the tax arena and giving permanent R&D one-year deductibility, adding new plant construction provisions for deductibility, and just solidifying a long-term rate for both privately held and publicly held companies, long-term tax rates that are way below OECD averages and therefore contributing to the competitive health of America and contributing to our ability to attract new investment. And it is a very positive for our industry, for sure, the motor vehicle parts sector, particularly the heavy-duty part of it.

Jamie Irvine

Yeah. And when you have that kind of friendly environment for investment, I mean, that's when things really start to grow. So let's get into various aspects of other policies that include tariffs. First of all, I wanted to ask you, what is an H-1B visa? And that's something that came up over the last few weeks. Like, what is it? And maybe then we'll talk about kind of its impact.

Bill Frymoyer

It's a visa for skilled workers, and it allows when the skills aren't available in the United States, it allows companies to bring in those workers, be they particular specialized engineers for our sector or for any sector. It allows them to come into the country for a period of time, live here, contribute, and then hopefully, ultimately become citizens and become permanent positive forces in the economy.

Jamie Irvine

Okay, and things kind of changed with that, so can you walk us through what's changed?

Bill Frymoyer

Well, the biggest change is that, you know, rather than being about $5,000, well, first of all, there's a lottery, and the lottery's only a few hundred dollars to enter. So you enter the lottery, that hasn't changed. But what has changed is that you get a $100,000 fee if you're chosen to receive a visa. So that's prohibitive for individuals, obviously. And it's really hard for tight margin, heavy-duty motor vehicle parts companies as well to be able to afford that type of a fee. And again, the administration claims that it's designed so that more US workers will be chosen. But you know, Jamie, the shortage of US workers across the board from skilled to unskilled, and particularly in these skilled technology, engineering, esoteric sectors, there's just not the folks that are available that we need for the jobs, whether it's our sector or any others.

Jamie Irvine

And previously that dollar amount was quite low. What was it? Like you said, $5,000.

Bill Frymoyer

Yeah, it's four to 5,000. I don't have the exact figure in front of me, but it's like, it's designed to send a message. Many administration policies are designed to send a message that we need to do a better job of developing talent in the United States. Probably we can do a better job at that, but like everything else, we can't do it immediately. And we'll see that in the trade area, the impact of sort of immediate demands that disrupt supply chains and profitability and everything else.

Jamie Irvine

And so when a company is in that position, they are trying to keep up with market trends. They're trying to develop new technology that is being demanded by the industry. Is there any other negative impacts that you can think of that come from this?

Bill Frymoyer

I think that's the biggest negative impact because what we're talking about is the competitive position in the country. Great approach on taxes, not a great approach on H-1B. One of the great things about H-1B is that when somebody graduates from university, we can keep them. The majority of our students taking in the American universities, engineering courses are not US nationals. But don't we want them to be? Don't we want to attract them here? And don't we want them pursuing the American dream here so that our economy is enhanced?

Jamie Irvine

Yeah, and when I think of like the need for innovation in our industry, it's clear that as time goes on, we're going to have to diversify the power supply that we draw from for our vehicles, right? We know that there's electric, we know there's ICE vehicles, but maybe there's needs for us to develop other technology because those two alone aren't going to cut it. Maybe we need to make our ICE vehicles better. And how do we do that? Well, we do that with really brilliant engineers who can bring forward you know, solutions that maybe challenge the status quo. So there is that risk for the trucking industry. And even when I think about the opportunity for like heavy-duty parts aftermarket companies, we see some of the robotics that is coming to make vehicles and retrofit them as autonomous. I was just learning about that at MEMA's tech conference and Kodiak Robotics is going to bring forward this technology and it's already sold to some early adopters, some fleets, you have an opportunity there to become an aftermarket remanufacturer of the modules that Kodiak is developing. Like, but you're not going to be able to do that with just the kind of old school reverse engineer kind of approach. This is going to take some pretty talented people, but there's an opportunity there in the future for a new aftermarket company to support the trucking industry. So we need those people. And if we aren't going to bring them from abroad, we got to figure out how to bring them, you know, up through our own ranks pretty, pretty darn fast.

Bill Frymoyer

Right. And like we say, we can do other things, but we definitely need the sourcing from abroad. And you mentioned technologies and heavy duty. I'd like to add another one, hydrogen. There's been some great research in that area for the long term, not for the immediate term in the heavy-duty space. And, you know, it's not a red state or blue state issue. You know, the state that does best on hydrogen development is actually Texas. So let's, you know, and wind and solar and other things. So it's like, you need everything. You need every, all hands on deck. You need every technology in this industry and many others, and you need every available worker. It's part, it's flip side of the same coin, isn't it?

Jamie Irvine

It really is. It really is. Let's shift gears a little bit and talk about Section 232 and tariffs on steel and aluminum. When I met with you to prepare for this episode a few weeks ago, this was the hot topic. What's transpired around that since we talked a few weeks ago?

Bill Frymoyer

Well, you'd be, you know, it's hard, we're hard pressed to keep up with all the developments in the trade space. And we just got about 400 new items where they, their steel companies and others, but mostly steel and aluminum companies are trying to get additional tariffs or what they call inclusions added to that already very robust 232 list. And what they're doing is they're asking for $200 billion, approximately $200 billion of imports to be subject to 50% steel and aluminum fees. And of course, that will adversely impact our members. They could be importing under the more modest auto part tariffs of 25% in the non-heavy-duty space. So in the automotive space, we don't even have tariffs in the heavy-duty space yet. And I want to talk to you about that in a little bit. So I'll wait for you to ask a question about the heavy-duty because we're supposed to be getting tariffs on heavy-duty parts on November 1st. So it's just a, you know, almost like a whack-a-mole situation for our poor members because every week, if not every day, there's a new tariff line that's added. There's a new tariff approach that's added and it just makes our lives more complicated and it makes our companies less competitive vis-a-vis the rest of the world.

Jamie Irvine

Right. So let me ask you something, because on the Canadian side of the border, there's a lot of uncertainty because this is coming so fast, right? So it's like, well, what's going to change tomorrow? I don't know. And it kind of it freezes people's ability to make long-term decisions, and they're just taking it day at a time. We've seen that definitely affect our economy, where there's projects to be done here on the Canadian side of the border, but they're just waiting to find out what's going to happen next, because they don't want to make a decision that puts them where they plan on today's reality, but tomorrow it's completely different. On the US side of the border, especially in the trucking industry, you talk about how fast this stuff has been coming at us. What's been the general feeling of the companies that are operating in this environment on the US side of the border?

Bill Frymoyer

They're overwhelmed by the change. And you need the growth industry right now for our members is trade and tariff experts. Customs brokers are doing really well. The companies themselves, the profitability is down and the long-term prospects aren't what people believe they would be a year ago because of these tariffs. And I just want to speak briefly, since you mentioned Canada, our industry is so integrated with Canada on heavy-duty, light-duty, and everything else, beginning with the 1965 auto deal. The first really trade agreement the United States was ever involved in was with our neighbor of Canada. And consequently, states like Michigan, Indiana, Ohio, to pick our three biggest states, we have over 90,000 people working in the motor vehicle parts sector in each of those states, 140,000 in Michigan. And they are used to working with Canada. They're comfortable with working with Canada. It's like a seamless border. I mean, you know, I've gone across the border when I'm in Detroit to meetings in Canada. That in many ways has been one of the more unfortunate developments that we don't really have a certain path on USMCA yet, though we're hoping that that will emerge over the next few months. And we're going to be very aggressive in telling the positive story about job growth for MEMA members in the heavy-duty, light-duty segments as a result of USMCA, job growth in the United States. That trade does create synergies that create jobs. And you can get win-win scenarios that, hey, benefit the United States, benefit Mexico, and benefit Canada.

Jamie Irvine

Yeah, absolutely. We're going to take a quick break. And when we get back from our break, we're going to talk about some of the new announcements that were made around commercial trucks. And we're going to get into that discussion about the USMCA. 

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Jamie Irvine

Bill, thank you so much for giving us some insight on things like the HB1 visa and section 232 that affects steel and aluminum. But you know, it's so much bigger than that, isn't it? Just recently, there's announcements now about tariffs coming on commercial trucks. Why? Aren't most North American commercial trucks manufactured on US soil?

Bill Frymoyer

They're manufactured in principally in the United States and in Mexico. Different companies have different percentages of where they manufacture. But the point of the matter is that if you're manufacturing in the US, you're sourcing parts from the US, you're sourcing parts from Canada, you're sourcing parts from Mexico, you're sourcing parts from around the globe. Same thing with Mexico. So it's again, a question of can we have a win-win scenario? And you know, to put tariffs on heavy-duty trucks right now when this industry, you know, my understanding is that we're now looking at a decline of double digits in terms of new purchases of vehicles because of the uncertainties that exist. And we're going to get more tariffs? It just doesn't make any sense. And I have to be honest and tell you that the administration, while the president has sent out a couple of his true social posts saying that there's going to be 25% tariffs on heavy-duty trucks with no sort of delineation of what exact the sizes are. The other thing that they're going to do, they're going to put tariffs on parts as well. That's what they tell us. And we hope that there will be some direct relief to parts suppliers from these tariffs. That didn't happen on the automotive side. There's relief, but it has to go only to the OE customers or the assembler. And I guess my point is, why put the tariffs in in the first place if you have to provide relief to the people that are impacted by them?

Jamie Irvine

Yeah. And the thing that really concerns me is the trucking industry is so integral to the success of our society as a whole. And so we've gone through things like COVID, supply chain collapse, and extended freight recession in the United States. There's been so many things kind of back-to-back to back. The last five to six years of my career by far have been more dynamic than the 20 years prior to that. And I think most people are feeling that. And so there's this concern that if we destabilize the trucking industry any further, like what's the impact? What's going to happen?

Bill Frymoyer

Well, you know, I'm not going to be able to gaze into my crystal ball and predict that, but I will say our members are resilient on the parts side of the equation. Their customers are resilient, but you can only push things so far. And what is interesting is that the administration and people on the Hill, they haven't seen real economic downturn statistically in our sector. We can tell them that people have been laid off due to the uncertainty. We can tell them that it's going to get worse, which we do, but we haven't reached an inflection point where we're going to get action to correct the problem. And I just hope, you know, Jamie, I just hope that inflection point doesn't come too late for all of our members, including our heavy-duty members, and I hope there's not real pain that occurs at their companies. Every day we're trying to educate people on what all of this means. You know, this is not, you know, it's not just another one in a series of these really big challenges. This challenge, because of its timing and because of its rapid-fire timing, this challenge is particularly problematic for our members.

Jamie Irvine

Yeah, and I've always said that the trucking industry is like the canary in the coal mine for the overall economy. And so when, unfortunately, once you've seen the trucking industry take a decline, you know the general economy is following suit very quickly, right? And one of the things that I've heard political pundits talk about is that regardless of what side of the aisle you're on, no administration can really weather a bad economy, right? Like this is when people then cry out for change because they're really suffering. And that's the connection that I see. Like I worry about the MEMA members, I worry about the aftermarket, the trucking industry as a whole, but I also worry about like, how does this spill over into everyday citizens' lives? And this is where I think common sense and balance is what most people from the trucking industry are advocating for. Wouldn't you agree with that?

Bill Frymoyer

Well, I think that's what most Americans are advocating for. And the really problematic things for our members is the wide swings in policy, right? You had massive increase in new technologies, EV, hydrogen, et cetera, massive subsidies that tried to move everything too fast. Now you have the reverse. They're pulling all the subsidies out where you need some subsidies on major new technologies to compete around the world. And you also, you know, you can't roll up the sidewalk and pretend the rest of the world doesn't exist. You got to trade with the rest of the world. I mean, I don't want to be an industry that like the US steel industry that's heavily protected and has a 1% market share globally. I think our heavy-duty industry can compete on a regional and a global basis still in major ways and what the policies that are being pursued on the one hand, I'm hopeful, on the tax side, some really good policies are being pursued. But on the trade side and also sort of the government and industry partnership side, we're just not getting the policies we need to compete with countries like China or even countries or entities like the EU and Japan.

Jamie Irvine

Yeah, and I think as a Canadian, from my perspective, and I obviously don't represent all Canadians, but I think that Canada needs to be a better partner to the US in certain areas. I was just down in Missouri and I was talking to an Uber driver about this and kind of educating him a little bit about Canada, because a lot of people, they only hear what they hear and they don't know the full story. On the one hand, I think, yeah, there's a real point there that Canada needs to be a better partner on border security, a better partner on various forms of military spending and just doing its fair share. But on the other side of that coin, you know, Canada has always, in my opinion anyway, been a good partner with the US economically and especially on heavy-duty in the trucking side. We've had a very synergistic kind of relationship. And I really hope that through all of this, we can drive towards a North American trade standard that will yes, the US needs to be strong. I mean, there's no question about that. But how can we do it in such a way that Canada can get back to a place where they're a good partner to the US and helping them, where Mexico can do the same? And so that brings me to the USMCA. What are your hopes as you advocate for this, like, and you're representing our industry's perspective, like talk us through what you think like a best case scenario could be and when do you think that could even be possible of happening?

Bill Frymoyer

Well, that's a lot right there, Jamie, to cover. This is the most important trade agreement for our industry that we've ever had. This is an agreement that's worthy of preservation, just a couple of stats. since the USMCA was passed in the United States, you know, let alone Canada or Mexico, 61,000 jobs in our sector, heavy-duty, light duty, et cetera, have been created. Another stat, there's been a 12% growth in the industry economic footprint, according to the USITC, so very reputable source. since USMCA came into being, up through 2024. So this agreement has been a very positive force for the US and nobody should think otherwise. The stats and data bear that out. And our members bear that out in the stories they tell us every day, part going across borders between the three countries seven times as it becomes more complex. a skilled workforce in Canada, the United States for high-end production. For Mexico, an increasingly skilled workforce for maybe some of the areas where the lower wage, less skilled production is needed. I think one of the biggest misnomers with all of this is that there's some that want to move all production of heavy-duty parts to the United States. That's not rational economically. We don't need to make everything here. Yes, we should make the driverless technologies. Yes, we should make the highest-level safety technologies, the highest-level chip technologies. Those should be done here. But wire harnesses don't need to be done here, for example, just to pick one thing. But there's some that think everything needs to come to the United States, and that really undermines actually the competitive position of our country, our countries and our companies. So USMCA, there's a lot riding on preserving this, preserving this as a trilateral deal. There's noises from some in the White House that they might want bilaterals with each country. Can you imagine how difficult that would be for our members to sort out different standards, different HTS codes covered with different tariffs? And it would violate the trust that we've established with the countries. And I think that's the final point I made, I'm going to make here. Canada and the United States have been very good friends since about 1812. And to be belittling Canada or not realizing the importance of this relationship in the past present and for the future, that's very troubling. And hopefully us and many others in manufacturing, manufacturing is united, you know, from National Association of Manufacturers, US Chamber, everybody that's involved in manufacturing, united about the benefits of USMCA. So we really hope we can preserve it and preserve it for our members and for our countries, but it's going to be tough in the current environment, I'm not going to lie. It's going to be tough, but we're ready for the fight.

Jamie Irvine

Yeah, and I mean, Canada has no shortage of its own challenges. We've had some very reckless policies around natural resource development. I don't think Canada has done a great job either of really preserving its spot on the digital side of the digital economy. Two out of the five top AIs, I heard, were developed by Canadian people in Canadian universities who then, you know, left the country and took all that technology with them. There's a lot at stake here and I think one of the dangers we all run is boiling things down or making them over simplistic in our in our viewpoint right there's, it's such a complex issue there's so many challenges associated but you know maybe this is too simplistic but the US and Canada being good partners and working together I don't think that's a bad thing for anybody right it really does have that ability to make it so that all of North America can be more successful. And I agree with you, with Mexico, they've got their, clearly they've got their issues in their country as well. But. if we're going to move away from globalization and we're going to nearshore and we're going to manufacture and do all this stuff really here near North America, then they're an integral part of that as well. And so we've got to figure out a way to navigate all of this and return to a place where partnership is something that is raising all of the countries up and making them strong. I think that's what's best for everybody. But you know, who am I? I just run The Heavy Duty Parts Report.

Bill Frymoyer

Well, I think you have real insights, is what I think. And that's exactly right. We need each other, and there's no downside to creating win-win scenarios so that everybody can benefit. And rather than trying to think of yourself in isolation, you might be the biggest economy certainly in the hemisphere, maybe in the world, although China's certainly you know, battling hard, but we need each other to be able to thrive as the world gets increasingly divided. And our members talk about it this way. It's sort of a Asia block, a Europe block, and a North America block. And it would, right now, before the tariffs, actually, we were getting more investment than Europe. Investment was shifting from Asia to here because of the benefits of USMCA and because of the skill level and the differing wage structures in the countries. And that is no longer the case, it appears. And so we've got to salvage and strengthen the USMCA so we can keep the competitiveness of the region going and so we still get the economic growth we need in heavy-duty and much more broadly.

Jamie Irvine

Well, I think that's a great place for us to stop. If there is just one last thing you'd like to make sure people remember from our conversation, because of course, when people listen back to this, things are changing so dynamically, it'll be interesting to see how it all plays out. But maybe what's the one thing you just want people from the trucking industry who's listening to this to remember?

Bill Frymoyer

Well, just how, as you said, how important they are to the economy, the fact that we're 70% of what's shipped in this region anyway is based on heavy-duty shipment and truck shipment. And we depend on you and we hope that we can be worthy of the trust that you place in us as we work hard to keep trade and trucking flowing in North America.

Jamie Irvine

You've been listening to The Heavy Duty Parts Report. I'm your host, Jamie Irvine, and we've been speaking with Bill Frymoyer, Vice President, Public Policy at MEMA. Bill, thank you so much for being on The Heavy Duty Parts Report.

Bill Frymoyer

Jamie, I am honored and really appreciate having a chance to talk to you today.