CPS America makes plan for Chinese tariff mitigation with next increase coming in October

In May, Reuters reported the Trump administration raised tariffs on $200 billion worth of Chinese imports — including inverters — from 10 to 25%. On August 23, the Office of the United States Trade Representative posted a press release saying that number would rise to 30% on October 1.

“China announced it will impose unjustified tariffs targeting U.S. products. In response to China’s decision, and in order to achieve the objectives of the China Section 301 investigation, President Trump has instructed the United States Trade Representative (USTR) to increase by 5% the tariffs on approximately $550 billion worth of Chinese imports,” according to the press release. “For the 25% tariffs on approximately $250 billion worth of Chinese imports, USTR will begin the process of increasing the tariff rate to 30%, effective October 1 following a notice and comment period.”

Ed Heacox, general manager of string inverter manufacturer CPS America, sent a letter to CPS customers on September 5 detailing the company’s plans to mitigate the tariffs:

Over the last year, CPS anticipated the risk of tariff increases, so we took action to mitigate the cost exposure for our customers. Here are actions we took to protect you;

1. 1. Accelerated inventory ahead of the 10% and 25% duty. This effectively delayed the burden on CPS customers.
   2. We created a USA production capability in Texas (pilot run successful, now is UL approved manufacturing site) — a hedge, an option — but components from China now equally face high tariffs.
   3. We drove efficiency and supply chain cost reductions with our existing operations — this enabled CPS to absorb most of the tariff costs temporarily.
   4. We have been reviewing alternative operations within Chint Group and with partners, but we are biased toward no change in our robust, high quality supply chain. We decided, thus far, to avoid operational changes so that we can assure reliable, high quality supply with low risk of disruptions to our customers.

We will institute a “Tariff Surcharge” on inverters as follows;

• • 8.8% for new orders placed after September 20th
  • This surcharge will be reviewed month to month
  • Surcharge magnitude depends on Tariff rules and CPS cost mitigation progress
  • The surcharge will be eliminated as soon as possible
  • Existing orders and those placed by September 20th for shipments by CPS America in 2019 will have no surcharge (ship from CPS America by December 31st) Your CPS sales contact can support you on order placement and shipment support schedules to avoid the surcharge costs if feasible for you to do so.

CPS will continue to make cost reductions to help offset the increased costs. We will also be cautious about supply chain disruptions so you can count on CPS “assurance of supply.”

Safe Harbor component and factory supply chain actions have been put in place and are being firmed up over the next few weeks for customers requiring such support from CPS. Now is the time to confirm such requirements as the production plans will be aligned to your requirements confirmed before end of September.