September 11, 2018 Tariffs Wreaking Havoc On The Auto Industry

Trump’s Metal Tariffs: Possible Impact on the Auto Industry

September 10, 2018

In March, Trump signed the executive proclamation imposing tariffs on two of the most important metals – steel and aluminum. This definitely took a toll on various industries, but it has the biggest impact on the automobile industry. Following Trump’s decision, steel imports are now taxed at 25 percent and aluminum at 10 percent.

The goal behind the tariff increase is to give more opportunities for local steel producers to thrive and grow their industry. But even before he signed the proclamation, there has been a lot of buzz around the potential consequences of the new tariffs.

Here’s a breakdown of how Trump’s metal tariffs are likely to affect the car manufacturing industry:

Car Price Hikes

Automakers and business groups warned that tariffs would wreak havoc on the industry.

Are you tired of having to repair your old secondhand car from time to time and think it is time to drive a new one? Unfortunately, now may not be the perfect timing. Most Americans can’t afford to buy a new car, according to a 2017 report. What more today? Take it from the car manufacturers themselves. Honda, for example, released a statement saying that the metal tariffs would raise both domestic and imported products, which would basically lead to “unnecessary financial burden” to their customers. Toyota had the same sentiments, saying it will adversely impact automakers, automotive suppliers, and the customers. Meanwhile, Ford said the tariffs will lead to $145 million in higher costs, and could rise up to $600 million for the full year.

U.S. Automakers Might Continue to Suffer

The automotive industry is even more challenged than many people realize. And they are likely to suffer more this year.

The U.S. automotive industry might seem like a strong industry. But it ended 2017 at a 1.8% YoY (year over year) decrease in sales on cars and light trucks. And with Trump’s proclamation, the future will still be rocky for automakers. According to John Bozzella, President and CEO Global Automakers, tariff hikes will certainly raise prices, making it more expensive to produce cars and trucks in the United States. This would mean a decline in sales and production, which is not good for both the consumers and automakers. Since Trump is imposing tariffs on EU imports (one of the largest suppliers of steel and aluminum), there’s going to be an expected increase in the prices of luxury brands, such as Mercedes-Benz and Audi. And exactly how much the price will increase depends on whether or not automakers will pass the full increase to the consumers, which is likely the case.

Employment Down the Drain

Trump’s metal tariffs are likely to compromise nearly 146,000 jobs.

The steeper metal tariffs certainly have a domino effect not just to car manufacturers, dealers and makers but also to everyone else in the industry, particularly the labor force. According to the Council on Foreign Relations (CFR), the new tariff rates could essentially put an end to over 40,000 auto jobs by the end of 2019, which is equivalent to 1/3 of the U.S. steel workforce.

According to a policy brief examining the potential net impacts on U.S. jobs following Trump’s metal tariff order, while the tariffs would increase the employment rates in the U.S. iron and steel industries by 33,464 jobs, the same will correspond to a loss of nearly 146,000 jobs. This means cutting five jobs for every one new created.

Tariff War?

The E.U., Mexico, and Canada are striking back.

In addition to car price hikes, lower car sales, and loss of jobs in the automotive industry, the increase in imported metal prices is likely to ignite tariff retaliation from the countries involved — Canada, Mexico and the European Union.

The EU already slapped tariffs on some $3.2bn(£2.4bn) worth of U.S. goods in response to Trump’s metal tariffs.

Mexico also said it is imposing “equivalent” measures on a wide range of farm and industrial products and other goods imported from the U.S.

Meanwhile, Canada – the largest supplier of steel to the United States – will impose tariffs on U.S. imports, such as whiskey, orange juice, steel, aluminum, and other products.

More loss than gain?

It was a real shock for the U.S. automotive industry when the Trump administration announced that they are imposing metal tariff hikes on the country’s biggest metal importers as a response to the declining state of domestic steel and aluminum production in the U.S. Even during his candidacy, Trump has long claimed that the U.S. is getting a raw deal on trade. “I want to bring the steel industry back into our country,” he declared last February.

But it seems like the consequences outweigh the benefits. Aside from the automotive industry, the newly imposed tariffs on metals could also put a huge toll on other industries, such as the manufacturing and construction industries.

About Lidia Staron
Lidia Staron is a part of Content and Marketing team at AutoTitleLoans.com. She contributes articles about the role of finance in the strategic-planning and decision-making process. lidia.staron@tinybudgetlife.com

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