President Donald Trump’s decision to stand toe-to-toe with China in a high-stakes trade war has local implications for CTA riders: The $50 billion tariff could drive up the cost of 846 new rail cars.
The largest rail car contract in CTA history — for $1.3 billion over ten years – was awarded in 2016 to a joint-venture now known as CRRC Sifang America, which includes a company owned by the Chinese government.
As part of the deal, the joint-venture agreed to build a $100 million rail car assembly plant at 135th and Torrence in the Far South Side’s Hegewisch neighborhood.
At a groundbreaking ceremony last year, Mayor Rahm Emanuel hailed the development for the 300 “skilled factory and new construction jobs” it would create. He noted that it was the first time in more than 50 years that CTA rail cars would be produced in Chicago.
But if Trump follows through on his threat to impose $50 billion in tariffs on imported Chinese products, the cost of the decade-long purchase could be driven up substantially.
And the question is, who would absorb that added cost — the contractor or the CTA?
“This was just a proposal by the administration. We’re still analyzing the potential impact. We’re looking at it to see what it would mean for our rail car purchase. But it’s too early for us to tell,” CTA Board Chairman Terry Peterson told the Sun-Times.
Peterson was asked whether the CTA was in any position to absorb a 25 percent tariff on rail cars and imported parts, particularly after imposing its first across-the-board fare increase since 2009.
“I can’t say whether we’re able to absorb it or whether they would have to eat it if we’re still analyzing it,” he said.
In an emailed statement, CTA spokesman Brian Steele noted that the contract was “signed two years ago” and that the CTA’s “expectation is that our vendor will comply with all the federal requirements that apply to this contract.”
He was apparently referring to a “Buy America” clause that requires a minimum of 69 percent of rail car components to be produced in the U.S. The remaining 31 percent could come from anywhere. It does not necessarily mean that China would be the point of origin.
The potential cost of Trump tariffs are just the latest chapter in a rail car contract that has been controversial from the get-go.
The CTA rejected a first round of bids and ordered a second round awarded to the Chinese joint-venture.
But losing bidder Bombardier contended the $1.3 billion deal was “rigged” and that the CTA “took direction” from Emanuel, who touted the Chicago assembly plant and the local jobs it would create.
Bombardier said its bid racked up 73.4 percent of all possible points in five areas, versus CSR’s 68.2 percent.
But Steele noted that CSR’s bid was $226 million less and was deemed the “best overall value” to the CTA. Although Bombardier drew higher total scores, the two companies were close on the most important category, involving “technical” elements, he said.
An internal “CTA decision-maker” ultimately concluded that Bombardier’s claims “have no supporting evidence and are without merit,” Steele said.
Crain’s Chicago Business was the first to raise questions about the potential cost to the CTA tied to the Trump tariffs.