If you haven’t heard yet, there are proposed tariffs that could potentially hurt the automotive industry in the United States. Duties that the Trump administration placed on steel and aluminum earlier this year have already raised material costs for automakers. Imported car tariffs of 25 percent may happen, as it is thought that imported cars somehow pose a national security threat. According to the Center for Automotive Research, approximately 44 percent of all automobiles sold in the United States last year were imported. While some argue that American workers have been harmed for decades because of offshore production, others believe that the tax could create more damage for workers here instead.
The imported car tariffs might jeopardize hundreds of thousands of U.S. jobs, drastically increase prices on new vehicles for consumers, and create retaliation from other markets. According to Jennifer Thomas, vice president of the Alliance of Automobile Manufacturers, it would be the equivalent of an $83 billion tax on U.S. car buyers.
It’s not just new vehicles that would be affected — automotive parts would be, too. While Sumitomo Rubber North America manufactures some products in Buffalo, New York, it imports tires from Japan, Indonesia, and Thailand. There have been plans to increase production at the Buffalo facility by four times by 2020, but the tariffs would hinder those plans.
Vehicles from both domestic and foreign automakers are manufactured here in the States, and many of their parts are imported. In fact, 17 percent of the Ford Escape’s parts are imported from Mexico; the Chevrolet Silverado, 44 percent. If the tariffs are enacted, the average price of a new imported vehicle could increase by $6,000; for U.S.-built automobiles, $2,000. The cost of a Honda Accord — which is manufactured in Marysville, Ohio — could rise by $3,000.
Throughout the past several years, China has invested billions of dollars into the auto industry in Michigan. As a result, companies have expanded, new factories have been built, and more than 10,000 jobs were created in the Mitten state. While much of the development of autonomous and electric vehicles occurs in Michigan, many of the state’s auto companies depend on foreign markets — specifically China. Chinese companies have also bought out some American automotive businesses, including A123 Systems, an electric vehicle battery manufacturer, and Henniges, a company that makes sealing and anti-vibration products. Although the tariffs are slowing down Chinese investment in the U.S., some Chinese companies are considering moving their automotive businesses here.
Basically, every new vehicle produced in the United States today relies on imported parts.
However, in retaliation to the administration’s imposed tariffs on Chinese-made products, China raised its duties on imported vehicles to 40 percent, hitting Ford, Tesla, BMW, and Mercedes-Benz the hardest. The U.S. tariffs on Chinese made goods include a 25 percent tax on Chinese manufactured automobiles, which has really only affected General Motors and Volvo.
Meanwhile, industry groups argue that the “higher costs will inevitably lead to declining sales and the loss of American jobs, as well as increasing vehicle service and repair costs that may result in consumers delaying critical vehicle maintenance.” In 2017, the U.S. imported $360 billion worth of vehicles and parts. About half of the imports were from Mexico, followed by Canada, Japan, Germany, South Korea, China, and the U.K.
Automaker labor unions are concerned that tens of thousands of jobs are in danger. About 195,000 Americans could become unemployed within one to three years after the tariffs are imposed. Hyundai’s labor union says that, along with U.S. sales, 20,000 jobs at the Montgomery, Alabama, plant may be eliminated.
While automotive companies, global trading partners, and industry groups are pleading that Trump does not impose the imported car tariffs, the administration is hoping to use them as a bargaining chip for better trade agreements. However, they could end up backfiring and hindering our own businesses.