President Trump’s threat to hit foreign automakers with sweeping tariffs has the U.S. car industry rattled and raised worries about an even greater shock to the American economy, amid a bruising trade war.
Trump’s trade battle with China has already raised odds of a global recession, but analysts say the threat of auto tariffs could be devastating to U.S. automakers and workers.
The president is nearing a November deadline to decide whether to impose tariffs on foreign automobiles and auto parts from a slew of crucial trading partners, including the European Union and Japan.
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While Trump has focused on decades of alleged Chinese trade abuse, the president also accuses steadfast allies like Germany and France of bilking the U.S. in the auto and agricultural sectors.
“For all of the ‘geniuses’ out there, many who have been in other administrations and ‘taken to the cleaners’ by China, that want me to get together with the EU and others to go after China Trade practices remember, the EU & all treat us VERY unfairly on Trade also,” Trump tweeted earlier this month.
He vowed that the situation “Will change!”
Trump must decide by Nov. 17 whether to impose tariffs between 5 and 25 percent on foreign autos, which could deal a crushing blow to the economies of key allies, who are already teetering on the edge of a recession.
The EU auto industry supports 12.6 million jobs, roughly 6 percent of the EU’s working population, and drives 4 percent of the union’s gross domestic product (GDP), according to data compiled by the Atlantic Council think tank. Roughly 29 percent of EU car exports by value go to the U.S., though tariffs could sharply curtail those numbers.
New tariffs on autos could also strain the U.S.-Mexico trade relationship as Trump seeks congressional approval for his update to the North American Free Trade Agreement.
But experts also warn of domestic fallout. The tariffs could raise costs for U.S. auto companies, hurting the industry even as Trump looks to foster manufacturing job growth ahead of a 2020 election that could hinge on several industrial states.
Car industry and manufacturing advocates have pleaded with Trump to hold off on auto tariffs, while economists have warned of the steep toll they could take on the economy at large.
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“Given how reliant the U.S. auto industry is on imported parts,” said Jérémie Cohen-Setton, a research fellow at the Peterson Institute for International Economics, “the US tariffs on foreign autos would harm the broader US economy.”
The Peterson Institute projected that full 25-percent tariffs on foreign autos would trigger a 2-percent decline in U.S. auto sector employment even if the targets of Trump’s import taxes did not retaliate. The EU and Japan, though, have pledged to hit back if Trump levies the tariffs. The institute estimated that retaliatory auto tariffs could more than double the job losses in the U.S.
Trump has touted auto tariffs as a means to reinvigorate U.S. vehicle manufacturing and American carmakers after decades of offshoring and domestic production declines.
Even so, the tariffs present the danger of raising costs for U.S. firms manufacturing abroad while penalizing foreign brands that build their cars in the U.S.
The Center for Automotive Research (CAR), an industry think tank, estimated the total job losses could range from just over 82,000 to potentially 750,000, and GDP losses from $6.4 billion to $62.2 billion, depending on the extent of Trump’s tariffs and any retaliation.
Roughly 1 in 6 cars produced in the U.S. are from EU-based companies, according to the Atlantic Council, and European auto companies created 420,000 jobs in the U.S.
A slew of foreign auto companies including Mercedes, Toyota, Mazda, BMW and Volkswagen have also opened new auto plants in the U.S. over the past five years, while General Motors has shifted production toward Mexico. And roughly 44 percent of foreign-brand cars sold in the U.S. were assembled in the U.S., according to federal data.
Trump’s proposed tariffs on autos and auto parts can also have devastating multiplier effects for the industry due to the deep integration of U.S. and foreign auto supply chains.
It’s common for a vehicle or part to cross international borders several times throughout the manufacturing process, particularly in North America, with the product incurring a new tariff with each trip. That makes tariffs on autos and auto parts uniquely damaging among import taxes, while complicating Trump’s efforts to target foreign firms.
Vehicles and parts coming into the U.S. from Mexico could face up to eight layers of tariffs from each trip across the border, according to CAR.
A 25-percent tariff would spike prices for newly U.S.-built vehicles by at least $1,100, while the price for Mexican-made vehicles would rise up $5,400, according to the group’s analysis.
Those complicated factors have industry watchers worried that any auto tariffs could backfire on U.S. manufacturers.
“The extent of border-crossing manufacturing supply chains in the auto sector is unique,” Cohen-Setton told The Hill. “There are in fact no 100 percent ‘made in the USA’ cars.”