Trump due auto-tariff guidance
Prospect of foreign car tax worries lawmakers, businessmen
Sunday, the Commerce Department is expected to issue an opinion on whether foreign-made cars endanger U.S. national security enough to justify tariffs of 20 to 25 percent on imported autos and auto parts. President Donald Trump would then have 90 days to decide whether to impose them.
The department could decide to postpone its conclusion. Or it could just hand its recommendations to Trump without making them public.
But if it does suggest that Trump impose the tariffs, the department would be advocating a major escalation in Trump’s combative trade policies. So far, he has stuck tariffs on imported steel, aluminum, dishwashers, solar panels and hundreds of Chinese goods. The tariffs have become a financial burden for U.S. companies that import goods and parts and have led some to pass on their higher costs to customers. Many economists worry about the eventual impact on the U.S. economy.
U.S. auto tariffs would almost surely lead Japan and the European Union to retaliate. They could also spark a rebellion in the U.S. Congress — including from Trump’s fellow Republicans — over concern that he is raising tariffs by invoking his authority to label certain imports a threat to America’s national security.
“I don’t believe that minivans from Canada or other allies are a threat to our national security,” said Republican Sen. Rob Portman of Ohio. “I hope the administration takes a step back and reconsiders any auto tariffs.”
The tariffs could have farreaching consequences — on the companies that make cars, often with imported parts; on the dealerships that sell them; and on the consumers who buy them. U.S. imports of passenger vehicles and auto parts amounted to $340 billion in 2017.
Sometimes, on a bad night, Brad Strong wakes at 2 a.m. and can’t get back to sleep. The insomnia isn’t about his
family or money or health. It’s about tariffs.
The Strong family’s three car dealerships in Salt Lake City could suffer a significant blow if the tariffs are imposed.
The Strongs’ dealerships sell vehicles made by German automakers — Volkswagen, Audi and Porsche. No Porsches or Audis are built in the U.S. Only a couple of Volkswagen models are. The likely result is higher prices and lower sales for Strong and other dealers who sell imported vehicles.
“I worry about the people that work for me and their families,” said Strong, who fears that his dealerships would have to lay off some of its 225 employees.
If 25 percent tariffs were imposed on imported parts and vehicles, including from Canada and Mexico, the price of imported vehicles would
jump more than 17 percent, or an average of around $5,000 each, according to IHS Markit. Even the prices of vehicles made in the U.S. would rise by about 5 percent, or $1,800, because all use some imported parts.
Luxury brands would absorb the sharpest increase: $5,800 on average, IHS concluded. Mass-market vehicle prices would rise an average of $3,300.
If the tariffs are fully assessed, IHS senior economist Peter Nagle predicts that price increases would cause U.S. auto sales to fall by an average of 1.8 million vehicles a year through 2026.
“We’re talking about an environment where sales are slowing already,” Nagle said.
In addition to Audi and Porsche, the most affected brands would be Mazda, Aston Martin and McLaren, which build all of their vehicles outside the U.S. The tariffs also would hit Audi, Porsche, Volvo, BMW, Mercedes-Benz, Hyundai and Volkswagen hard. Nearly
100 percent of Volvos sold in the U.S. were produced elsewhere last year. The figure is 67 percent for BMW, 63 percent for Mercedes, 84 percent for the VW group and 62 percent for Hyundai.
“I think it would be harmful to the whole economy,” said Howard Hakes, president of Hitchcock Automotive, which has three Toyota showrooms in metro Los Angeles. “You put a 25 percent tariff on that, you’re slowing down the train that’s rolling already.”
Mario Murgado, who owns Honda, Volkswagen, Audi and other dealerships in the Miami and Chicago areas, has a different view. He says he’s willing to sacrifice sales if necessary to make global trade fairer. Other countries, Murgado argues, assess higher tariffs than the U.S. does, while countries like Japan impose other barriers to importing U.S. vehicles.
“I’m just trying to do the right thing that’s in the best interest of our country,” he said.
Of the 17.2 million vehicles sold in the U.S. in 2017, 52 percent were produced domestically, according to the Center for Automotive Research. Fourteen percent came from Mexico and 11 percent from Canada. Ten percent were made in Japan, 5 percent in South Korea, 3 percent in Germany and 5 percent elsewhere.
There are many ways auto tariffs could be imposed. The worst-case scenario for the industry would be tariffs on both vehicles and parts. The administration also could slap levies on vehicles but not parts. Or it could suspend tariffs and use them for bargaining.
But the tariffs would likely invite retaliation aimed at U.S. farmers or other sectors of the economy, said Kristin Dziczek, a vice president at the Center for Automotive Research.
“If we [tax] Audis, Germany could say, ‘We don’t want your peanut butter,’” she said.
Toyota sedans are displayed at a dealership in Industry, Calif. If 25 percent tariffs are fully assessed against imported parts and vehicles, the price of imported vehicles would rise more than 17 percent, or around $5,000 each, according to forecasts from IHS Markit.