Tariffs will hit US car buyers hard
DETROIT – New tariffs imposed by President Donald Trump on auto parts from China will hit carmaker profits, cut sales and threaten to “start a downward cycle” in the critical industry, analysts unanimously agree.
In addition, if you’re in the market for a new car, you probably should head to a dealership soon, because prices will be
going up.
Trump’s latest round of tariffs on Chinese imports will add costs to more than 100 car parts – a 10 percent levy on everything from tires and brake pads to engines and batteries – that go into vehicles made and sold in the U.S.
“It’s going to be felt by Americans, and it’s going to be a big deal,” said Peter Nagle, senior analyst at IHS Markit. “Tariffs are taxes on consumption. Eventually costs will be passed down to the consumer. This will drive vehicle costs higher. It also includes a lot of body shop equipment.”
Trump has campaigned on trade issues, saying new deals are needed with China and other partners, and he has imposed tariffs when talks go slowly. He escalated a trade war between the two largest economies on the globe with the announcement on Monday of $200 billion in new tariffs. A 10 percent tax on thousands of imports from China takes effect Monday, rising to 25 percent on Jan. 1. China hit back on Tuesday, levying tariffs on $60 billion in U.S. products.
Analysts said it is unclear how much car prices will go up in order to absorb the costs of a trade war, but everyone agrees that prices must go up – and that parts from China are critical to the auto industry. And all that means car sales will drop as a result, too. “This is definitely the “Mother, make it stop” point for the auto industry,” said Jon Gabrielsen, a market economist who advises automakers and auto suppliers.
Finding a silver lining in the move is difficult, said Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research.
“Tariffs are taxes on American consumers. We’re going to sell fewer. And not only do we buy car parts from the rest of the world, we sell parts to the rest of the world,” she said. “It’s all going to cost more . ... It starts a downward cycle that isn’t good.”
“China can wait us out,” she said. “For the car industry, this means a lot of efficiency they’ve gained from building up the global supply chain is lost.”
A 10 percent tariff will be applied to the U.S. this month. That will increase to 25 percent on Chinese goods starting Jan. 1, Gabrielsen said. That’s just for parts, not the full cost of a vehicle.
Automakers didn’t comment on how they planned to absorb the costs. “We are reviewing the list,” said Ford spokeswoman Christin Tinsworth Baker. “What we would emphasize is that it is essential that governments work together to lower, not raise, barriers to trade.”
Fiat Chrysler declined to comment. General Motors declined to respond to a request for comment.