In the past, the Trump administration has spoken out in favor of the automobile industry and strengthening the general North American automobile market. Consequently, it’s come as a surprise that they are currently considering moves that could lead to heavy auto tariffs, potentially impacting quite a few companies.
Many of the trade deals recently adjusted have a focus on bringing manufacturing and industry back to the United States. Taxies levied against steel imports have been rendered with the goal of improving the American steel industry. Similarly, the auto tariffs are intended to bring more automobile manufacture into the United States. However, many analysts and economist worry that it may not be that simple.
By limiting the supply of goods such as aluminum, the cost of these goods could go up. This will ultimately lead to costs going up for nearly everything across the board, which could lead to dampened customer spending and a damaged economy. This new tariff would put an additional premium on cars, trucks, SUVs, and even automobile parts. This could potentially make it more difficult for both businesses and individuals to purchase vehicles.
Perhaps most strangely, a major reason behind this new trade deal is not an economic-related one, but security-related one. The Trump administration has cited a cause for concern regarding national security. The president has attempted to levy tariffs of as high as 25% through a provision that states that the president has the power to impose unlimited tariffs if there is a threat to national security.
It isn’t only the impact of these tariffs in the United States that economists are worried about. With the other tariffs in place, this automobile tariff could potentially be damaging enough that other countries may react negatively. There are many countries that export vehicles to the United States. 24% of the vehicles imported in the United States are provided by Mexico, 22% by Canada, and 21% by Japan. North American distributors will be hardest hit by these changes, but it will be felt throughout the globe.
Though national security has been cited, it’s more likely that these deals are a part of the administration’s desire to modify NAFTA. Many of the trade deals completed thus far have made other countries wary, with Canada and Mexico making moves to make deals on their own in the event that the United States begins to make even more significant modifications to their trade.
It’s possible that these auto tariffs are nothing but a threat, and if so, it may be interesting to watch unfold. Global automobile manufacturers may be able to adjust swiftly to new tariffs, making them moot and rendering the United States’ negotiating power limited. However, that relies on whether global automobile manufacturers have properly assessed and reported on their ability to pivot.
On the other hand, the United States may need vehicles more than these other companies need to export them. If so, the United States will need to back off on the idea of tariffs or substantially lower the tariffs that are being considered. This could harm the United States from a trading and negotiations aspect, as it may indicate that the initial negotiation strategy was largely toothless.
Up until now, many of the automobile-related trade deals were more symbolic than anything Though there was a quota capped on South Korean exports into America, the quota was placed at far above the amount that South Korea generally exports. This may have been a testing ground for larger changes.
It remains to be seen whether these automobile tariffs are a serious move by the administration or if they are negotiating tactics. But if they do go through it could have widespread ramifications for not only the automobile industry but the economy as a whole. Though domestic manufacturers may see a boost in production, they may also see rising costs as they attempt to scale up quickly while tariffs on steel and aluminum are in place. Businesses across North America may see the cost of doing business rise, as transportation costs increase.
Regards,
Ethan Warrick
Editor
Wealth Authority
