Trump’s tariff plan could raise vehicle prices, cause job losses

“At the Geneva Motor Show last week, one topic dominated conversations among OEMs and dealers of all nameplates: President Donald Trump’s tariffs on imported steel and aluminum,” said NADA President Peter Welch. Three representatives from WANADA attended the Geneva show: Chairman John Bowis, Auto Show Chairman John Ourisman and President and CEO John O’Donnell. A more detailed report will be included in next week’s Bulletin.

 

Despite the objections of many economists, executives from different industries and senior Republicans in Congress, Trump imposed tariffs of 25 percent on steel and 10 percent on aluminum. Considering the president’s habit of changing his stance on issues, some observers had thought that he might or could still change his mind on this one. But media reports have noted that even with all of Trump’s changes on other issues, an unfair trade imbalance for the United States has long been an obsession of his.

 

“It’s a process called dumping,” Trump said when presenting the tariff plan, “and other nations dumped more than anytime, anywhere in the world, and it drove our plants out of business.”

 

The tariff plan exempts Canada and Mexico, with the idea that the threat of tariffs could be used as leverage to gain more concessions for the U.S. in the North American Free Trade Agreement (NAFTA). NAFTA talks are currently stalled.

 

“If we don’t make the deal… then we’re going to terminate NAFTA and we’re going to start all over again, or do it a different way,” Trump said. The auto industry is closely watching the NAFTA talks, as U.S. automakers have plants and manufacture parts in Mexico and Canada. The auto industries of the three countries are closely intertwined.

NADA: Vehicle affordability is the focus

On both NAFTA and tariffs, NADA is focused on vehicle affordability. The U.S. dealer group  has joined the Alliance for Competitive Steel and Aluminum Trade (ACSAT), a coalition representing a broad cross-section of industries, including autos, that produce and sell intermediate and finished goods containing steel and aluminum. ACSAT’s immediate recommendation is for “Congress and the president [to] work more cooperatively to achieve the proper balance between trade concerns and other national priorities.”

 

AIADA had already come out against tariffs before they were formally announced. Like NADA, AIADA President Cody Lusk emphasized the harmful effect they would have on vehicle affordability.

 

John Bozzella, president and CEO of the Association of Global Automakers, sounded the same theme: “A tariff is a tax that will result in higher prices that consumers will ultimately bear,” Bozzella said. “Exemptions will not address the fundamental problems tariffs will create for U.S. car and truck manufacturing. Increased costs will make our industry less competitive and harm American workers, consumers and the economy.”

 

Independent study confirms affordability argument

A study by the Council on Foreign Relations (CFR), an independent think tank, gave hard numbers to the vehicle affordability argument.

 

“Given that tariffs tend to increase import prices (which determine domestic prices) by at least as much as the tariff,  we calculate that a 25 percent steel tariff will increase the price of new passenger vehicles manufactured in the United States between 0.5 and 0.8 percent,” the council’s report said. The price rises could lead to a decline of between 1.6 percent and 3.6 percent in global vehicle sales.

 

Because of the close relationship between vehicle sales and jobs, the CFR said job losses in the U.S. auto industry could reach 40,000 by the end of 2019 as a result of the  proposed tariffs.

 

“Employment in the U.S. auto industry will suffer from Trump’s tariffs to a vastly greater degree than it could possibility benefit the U.S. steel industry,” the CFR report said.

 

What’s next?

The Trump administration has invited the other affected countries besides Canada and Mexico to enter discussions to create similar exemptions in exchange for trade concessions. We should expect an intense round of lobbying, which will likely result in many more caveats and clarifications as the tariffs are rolled out. The busiest period will be from now until March 23, when the tariffs will take effect.

 

In his blog post for NADA, association president Welch raised the question of whether Trump can unilaterally impose the tariffs without Congressional approval. Sen. Jeff Flake (R-AZ), has indicated he will introduce a bill to overturn the tariffs, but it likely does not have sufficient Congressional support to withstand an expected presidential veto.

 

Another possibility is administrative challenges or litigation filed against the Trump administration for imposing the tariffs, says NADA. The affected industries may challenge the tariffs in court, and U.S. trading partners will likely challenge them before the World Trade Organization.

Download Bulletin PDF