Uncertainty over tariffs threatens auto jobs, sales
Industry anxious over what Trump might do
The auto industry just got a major dose of uncertainty that could reduce investment in new technologies and vehicles.
The Trump administration hasn’t revealed the Commerce Department’s recommendations on whether to apply new tariffs on imported vehicles and components.
Uncertainty is kryptonite to the auto industry, which routinely invests tens of billions of dollars in projects that can take a decade or more to pay off.
At issue is the potential for broad U.S. import tariffs and trade restrictions that could cost 366,000 jobs – nearly 100 times what’s at stake in GM’s controversial plant closings. The tariffs and trade restrictions could increase average vehicle cost by $2,750 and reduce U.S. sales by 1.3 million vehicles a year, according to a new study by the Center for Automotive Research.
The Commerce Department’s recommendations are in what is called an Article 232 report, after a rule that allows the president to apply tariffs when national security is at stake. President Donald Trump has 90 days after the report is issued to decide on the
tariffs, though he is not bound by whatever Commerce recommended.
The result could be tariffs of up to 30 percent on imported vehicles and parts, excluding those from Canada, Mexico and South Korea, which have separate trade deals with the United States.
Other costs to automakers in the trade war include tariffs on steel and aluminum and Chinese imports, which are already in place. Ford said those tariffs cost it $750 million last year.
‘Threat to consumers’
“Broad Section 232 tariffs on autos and auto parts still present the biggest trade policy threat to consumers and the U.S. economy,” National Auto Dealers Association President and CEO Peter Welch said. “NADA understands and appreciates the administration’s attempts to level the trade playing field and eliminate unfair trade practices, but expansive Section 232 auto tariffs are the wrong tool for the job. They will lead to dramatic price increases, depressed vehicle sales and job losses.”
NADA sponsored CAR’s study, “U.S. Consumer & Economic Impacts of U.S. Automotive Trade Policies.”
Every car, truck and SUV sold in the USA would be affected by the tariffs. Even vehicles assembled in the USA use many imported parts, and U.S.-made parts are exported to plants in Canada and Mexico.
“There is no 100 percent U.S.-made car,” said CAR Vice President for Industry, Labor and Economics Kristin Dziczek. “The average U.S.-built vehicle has around 50 percent to 60 percent U.S. content,” excluding labor.
The worst-case job losses predicted by CAR are 96 times the 3,800 jobs at four U.S. plants General Motors is expected to close.
The effect of widespread Article 232 tariffs on vehicles and parts would dwarf tariffs on imported aluminum and steel, which raised vehicle prices and cut automakers’ profits by billions of dollars in 2018.
The Commerce Department spent months on the report, which Trump requested to justify tariffs on imported vehicles and parts on national security grounds.
There was a brief flurry of concern when trucking companies canceled a significant number of orders for tractor-trailers, which are called Class 8 heavy-duty vehicles based on their towing capacity. That turned out to be a blip, not a trend, said Jim Mele, Wards Intelligence contributing editor for commercial vehicles. He expects steady sales of Class 8 and smaller medium-duty vehicles, such as UPS vans, boom trucks and construction vehicles, through 2019.
“The freight business is growing twice as fast as the GDP,” said IHS Markit commercial vehicles director Andrej Divis. “That’s very strong. The general view is 2019 will be up slightly from 2018.”
Medium- and heavy-duty truck sales can indicate future economic strength. They’ve been increasing steadily since the end of the Great Recession, one of the longest economic expansions in U.S. history.
‘A very strange market’
That’s one of the reasons economists are nervous. The country is overdue for a cooldown, though not a major recession.
“This is a very strange market,” said Charlie Chesbrough, chief economist for Cox Automotive. “The length of the recovery and recent interest rate increases suggest we should see a downturn, but borrowing and wages are not showing it.” The rise in people falling behind on car loans appears to be another blip, he said.
“The president’s policies add a level of uncertainty,” Chesbrough said. “You can’t plan because they’re all over the map. New tariffs on vehicles, parts or materials would send shock waves through the economy.”
Tariffs could push up the price of imported vehicles, according to IHS Markit forecasts.