The Trump administration is considering a tariff increase to 25 percent on imported vehicles and auto parts intended to bolster the domestic auto industry, however two new studies have predicted that the damage from a stiff tariff on auto imports will impact the US economy more than it will help.
Discussion into the tariff on imported vehicles and auto parts was opened by the US Department of Commerce under the Trade Expansion Act of 1962. The Department of Commerce suggests that tariffs are necessary or reasons of national security, equating a weakened internal economy with national security.
A study published by The Trade Partnership in Washington, DC evaluated the potential impact of import automotive tariffs to the American economy. They found that the proposed “tariffs would add about $6,400 to the price of an imported $30,000 car”.
As well, The Trade Partnership forecasts that for every job gained in the motor vehicle and parts sector, three American jobs would be lost. The result over the first three years of the import auto tariff would be a net loss of 157,000 jobs in the United States. That’s calculated by factoring a gain of 92,000 jobs in the automotive sector into an overall job loss of 250,000 jobs in the rest of the economy.
The Peterson Institute for International Economics (PIIE) weighed in with a study of their own. A PIIE analysis projects that in a one to three-year span, production in the automotive sector would diminish by 1.9 percent and would cost 195,000 American jobs in these fields.
Retaliation Compounds the Effects
Should countries affected by high tariffs on import vehicles and car parts decide to retaliate with tariffs and duties of their own – which would be expected – the effects in America are much greater, according to the PIIE report. Production in the US for these industries President Trump aims to bolster would drop by 4 percent. One in twenty auto workers would lose their jobs, adding up to 624,000 people projected to stand in the unemployment line.
Currently, the US enforces a 2.5 percent tariff on import cars and a 25 percent tariff on trucks.
Overall, PIIE figures that $208 billion in vehicle imports would be affected. It’s important to note that the value for auto parts is not factored into that figure. A one-for-one retaliation scenario would certainly see the economy shrink. The Trade Partnership estimates the GDP would shrink by 0.1 percent. That seems like a small figure, however with a GDP in 2017 of $19.39 trillion, it equates to an effect of nearly $20 billion US.
Should the proposed auto tariffs take effect, the retail automotive industry can expect to take a direct hit in the US. With import car costs rising from their current tariff to 25 percent, manufacturers and dealers will have to face a decision: how much of the cost increase will they absorb, and how much will be passed along to consumers?
Month-over-month sales gains in North America would most likely recede as seven of the top ten best-selling models in the United States are import models. Not only would a price increase deter car buyers, but consumer confidence in the auto industry will be negatively affected with the added tumult.