National Post (National Edition)
TRUMP’S STANCE ON AUTO TARIFFS,
‘The biggest hit will be on the U.S.,’ if Trump carries out threat: Experts
TORONTO •As the trump administration doubles-down on its threat to impose 25 per cent tariffs on auto imports, industry experts are warning the move would devastate the North American auto industry and lead to job losses not only in Canada, but the United States.
“It’s a nightmare scenario for Canada, the United States and Mexico, but the biggest hit will be on the U.S.,” said Dennis Desrosiers, president of consulting firm Desrosiers Automotive Consultants.
“There would be a serious shortage of supply into the United States, and it doesn’t have capacity to build more vehicles, so the prices of all vehicles would go up quite radically .... It’s so outrageous and so negative to the U.S., it’s unlikely Trump can be serious.”
Last month, U.S. President Donald Trump initiated a Department of Commerce investigation to determine the national security effects of the import of automobiles and autoparts under Section 232, the same process used to impose recent tariffs on steel and aluminum.
While it is yet to be seen whether the auto tariffs will come into effect, Trump seemingly reiterated his support for them in tweets over the weekend.
David Adams, president of Global Automakers of Canada whose membership includes Toyota Canada Inc. and Honda Canada Inc., said the tariffs would present immediate difficulties for all auto manufacturers in Canada.
“Regardless of which of the five manufacturers you’re talking about, somewhere between 80 to 85 per cent or more of production goes to the U.S. market. If you cut that off, that would certainly provide a challenge for those manufacturers,” Adams said.
“These types of tariffs, they not only ratchet up the trade war overall but they impact the auto industry very specifically and very directly.”
Desrosiers said that of the five automakers producing vehicles in Canada — Honda, Toyota, General Motors, Ford and Fiat Chrysler — the U.S. manufacturers would be hit by the tariffs hardest because they export more of the vehicles produced in Canada to the U.S.
“With the 25-per-cent tariff, you would actually hurt American companies more than the Japanese companies,” he said.
“On top of that, there would not be immediate job increases in the U.S. It takes two to three years to build a new plant, and another year to be operating efficiently, so you wouldn’t see any new jobs for at least three years. In the meantime, you’re bleeding.”
Desrosiers estimates that such tariffs could lead to job losses of between 300,000 and 500,000, with most of those being in the U.S. A Petersen Institute for International Economics report estimates that 195,000 U.S. workers would lose their jobs if the tariffs are imposed. The figure would jump to 624,000 jobs if other countries retaliate with their own tariffs.
Flavio Volpe, the president of the Automotive Parts Manufacturer’s Association, likened the decision to threaten the massive tariffs to “a captain of a ship steering toward an iceberg.”
“I’m not sure if the president or his advisers know what the effect of tariffs will be,” he said.
“Even if they do, that short-term pain is going to cause long-term investment decisions to be made off the cuff. You’re not going to redirect current automotive production into the U.S. because of this.”
Many economists and industry experts agree that the immediate impact of the auto tariffs would be felt by U.S. consumers.
“If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices,” John Bozzella, chief executive of the Association of Global Automakers, a Washingtonbased trade association, said in a statement after the investigation was announced.
“This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners.”
Conference Board of Canada economist Sabrina Bond also said such tariffs would be “a very direct hit to Canadian automotive competitiveness.” Last year, Canada’s exports of finished vehicles totalled $54 billion, according to Bond, accounting for 96 per cent of the industry’s total annual production and almost entirely going to the U.S.
“Direct tariffs on finished vehicles to the U.S. would obviously have a tremendous softening impact in terms of vehicle production, if that’s the case,” Bond said, adding that the auto industry does have some flexibility to respond to smaller tariffs — for example, the World Trade Organization’s most favoured nation tariffs of 2.5 per cent that would apply if NAFTA disappeared. But she said the proposed 25 per cent tariffs “would be an entirely different consideration.
“This would be a matter of the industry looking at viability, especially if these kinds of tariffs are long term,” Bond said. “If we’re looking at a range of 25 per cent, what that starts to do is go past the cost structure and into the question of plant location and the decision of plants to continue to operate in Canada.”
In light of President Trump’s use of Section 232, several Republican and Democrat senators introduced legislation last week that would require congressional approval of tariffs applied in the interest of national security.
“While we all agree on the need to ensure the international trade system is fair for American workers, companies, and consumers, unfortunately, the administration is abusing the Section 232 authority delegated to the president by Congress,” Republican Senator Bob Corker said in a statement.
The Commerce Department will be accepting written submissions regarding the proposed tariffs until June 22, with rebuttal comments due July 6. Two public hearings will be held July 19 and 20 in Washington.