As Trump continues to ramp up protectionist tariff talk and suggesting that imported autos and auto parts will be next, the U.S. auto industry is collectively saying, thanks, but no thanks.
“While we understand that the administration is working to achieve a level playing field, tariffs are not the right approach,” said a statement this morning from the Alliance of Automobile Manufacturers. “Tariffs on autos and auto parts raise vehicle prices for all customers, limit consumer choice and invite retaliatory action by our trading partners. Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade.”
The Alliance represents U.S. automakers Ford (NYSE: F), General Motors (NYSE: GM) and Fiat Chrysler (NYSE: FCAU), but also counts foreign automakers as members. Trump has threatened to place tariffs as high as 25% on foreign autos and auto parts to protect U.S. auto jobs.
“Domestic and international automakers build autos in 45 facilities in 14 states and support more than 7 million jobs across the U.S.,” the Alliance added. “We believe that the economic security of the auto industry and country would be strengthened through modernizing NAFTA to grow U.S. manufacturing and jobs, concluding a U.S.-EU Trade Pact to address trade barriers on both sides of the Atlantic and seeking other opportunities to expand market access for U.S. auto exports.”
The U.S. Department of Commerce is currently investigation automotive imports for potential tariffs based on “national security” concerns. The investigation, dubbed Section 232, is expected to be concluded sometime in July. Reports are that Trump would like to announce auto tariffs before the mid-term elections, believing it will bolster Republican performance at the polls.
At a conference in May, Commerce Secretary Wilbur Ross said, “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.”
The Section 232 is the same approach the administration used to apply tariffs on imported steel and aluminum. While those tariffs have raised some prices for goods, including trucks and trailers, steel and aluminum imports are small in comparison to automotive imports. The tariffs on steel and aluminum applied to $29 billion in steel and $18 billion in aluminum. The U.S. automotive industry imports over $360 billion in cars, parts and engines each year. According to a Politico report, nearly every car made in the U.S. still uses up to 25% imported parts, with some parts crossing borders several times.
According to the Globe and Mail, automotive trade between the U.S. and Canada amounts to $140 billion annually. Trucks carry much of that, especially between Michigan and Ontario. Overall U.S. NAFTA trade, which includes automotive, generates $6.5 billion in revenue for the trucking industry and supports 46,000 U.S. truck jobs, according to Bob Costello, chief economist of the American Trucking Associations.
The Globe and Mail reports that $18 billion worth of parts made in Canada each year are shipped to the U.S. for final assembly by U.S. workers.
“These tariffs will harm today’s U.S. auto industry, which is comprised of fourteen auto manufacturers, all of which are global and 10 of which are international automakers. Each of these companies employ American workers to produce cars in the United States, and tariffs will substantially increase prices for consumers, said John Bozzella, president and CEO, Global Automakers on behalf of the ‘Here for America’ initiative. “There is no national security justification for taxing imports of vehicles and parts or discriminating between global companies headquartered here or in allied countries. Every U.S. production facility in the industry could be made available in a national emergency, and the 130,000 Americans who work directly for international automakers are no less patriotic or willing to serve their country in a time of crisis than any other American.”
According to Global Automakers, international automakers have generated 1.29 million direct and indirect American jobs and invested over $75 billion in U.S. operations, building over 5 million cars and trucks in America in 2017. The international automakers also export over 1 million cars made in America each year.
Global Automakers is a trade association representing international vehicle makers and their suppliers.
According to the Alliance for Automobile Manufacturers, a 25% tariff would add $5,800 to the average price of a car based on an analysis conducted by the U.S. Department of Commerce. The result would be a 1.5% decline in production and the loss of 195,000 U.S. auto jobs over three years, says the Peterson Institute for International Economics. Their analysis estimates that if other countries retaliate with tariffs, then American job losses would likely increase to 624,000.
Experts believe that if the U.S. places tariffs on automotive goods, retaliatory tariffs will also be instituted. American motorcycle maker Harley-Davidson announced this week that it would be moving production of European-bound motorcycles from America to a plant in Europe following EU tariffs that were placed on motorcycles. Those tariffs were in response to Trump’s steel and aluminum tariffs.
In a SEC filing, Harley-Davidson said the trade dispute will cost it between $90 and $100 million this year.
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