Daily Management Review

Who will suffer from Trump's car tariffs?


Introduction of a new US tax on imported cars and auto parts can be a threat to the global automotive industry.

However, some automakers may suffer the greatest losses. In addition to American drivers who will have to pay a higher price for new cars, many large automakers will suffer if the US introduces tariffs for imported cars, SUVs, vans, trucks and auto parts. The Wall Street Journal reported that President Trump can set tariffs of 25% on car imports.

Mexico and Canada are the largest source of imports of cars in the US. Their volume of import amounts to $ 89 billion per year. Undoubtedly, the introduction of tariffs can be a huge blow for them.

However, many analysts expect that the US neighbors will be exempted from any new tariffs, as the US revises the NAFTA trade deal.

"If we try to foresee the further development of the situation, then only the NAFTA agreement will be able to free Canada and Mexico from tariffs," Jeff Schuster, a leading auto expert at LMC Automotive, said.

If you remove Mexico and Canada from this equation, then Japan and Germany will be under attack. Japanese and German automakers are sending the most expensive cars to the US market.

In 2017, the US imported Japanese cars worth $ 40 billion. In the same year, they imported German-made cars worth $ 20 billion.

According to LMC Automotive, Volkswagen, the largest automaker in the world, could suffer more than the rest, as 45% of cars it sells in the US come from international plants. More precisely, tariffs on the border with the USA can be applied for more than 281 thousand imported Volkswagen cars (not counting the Volkswagen cars that come from Mexico).

Toyota, the largest car manufacturer in Japan, will also suffer, as 30% of cars sold in the US are imported from abroad. This means that new tariffs will be applied for almost 724 thousand cars. In Japan, Toyota shares fell 3%.

American automakers may also be hit by tariffs on imported cars. Last year, GM sold 3 million vehicles in the US, but the country produced 2.2 million vehicles. This means that it annually imports thousands of models.

It seems that the US administration does not care about risks or problems associated with the fact that new tariffs may lead to a reaction of merchant porters.

At the end of Wednesday, Secretary of Commerce Wilbur Ross said that after talking with Trump, he would begin an investigation into the fact that importing cars could damage the national security of the United States.

This type of investigation, known as section 232, is the same approach that the Trump administration took advantage of before lowering tariffs on imports of steel and aluminum earlier this year, citing national security concerns.

Currently, vehicles supplied from Europe to the US have a low tariff of 2.5%. Meanwhile, for American cars, a tariff of 10% is set at the time of deliveries to the EU.

Experts suggested that instead of threatening with new tariffs for world car imports, the US should negotiate with other countries in order to force them to lower tariffs.

For example, if the EU drops tariffs below 10%, it will make US models more attractive to European buyers. In this respect, the United States has already achieved some success.

Earlier, China announced that it would lower tariffs on cars, which gives a potential impulse for foreign automakers in the world's largest market. The Ministry of Finance of China announced that from July 1 it will reduce import duties on passenger cars from 25% to 15%.

source: bloomberg.com