The Trump Administration has delayed its decision on a proposed 25 percent tariff on imported cars and parts, moving the deadline back another six months. While that provides some relief for the industry (which anticipates large price increases, lost sales, and supply chain challenges as a result of the tariffs), additional tariffs on Chinese goods – including auto parts and electronics – could pose a threat.
The U.S. has already increased tariffs from 10 percent to 25 percent on $200 billion in Chinese imports. There could be another increase of 25 percent on $325 billion in imports this summer.
The proposed 25 percent automotive tariff was targeted at Japanese and European car and auto parts imports.
“The Auto Care Association urges President Trump not to follow through on his threat to increase tariffs on $200 billion in imported goods from China as soon as this week,” said Auto Care Association president and CEO Bill Hanvey. “The proposed sudden increase from 10 percent to 25 percent would have an immediate negative impact on not only the U.S. businesses that manufacture and distribute these parts, but the motoring public who will see higher prices on a wide range of products, including important safety-related components. Furthermore, the president’s suggestion that a 25 percent tariff could be levied on an additional $325 billion in imports from China, without knowing which goods would be impacted, creates even more uncertainty for the business community.”
Automakers and other industry stakeholders have already had to deal with the fallout from Section 232 tariffs on steel and aluminum that have affected domestic operations as well as goods imported from a wide variety of countries, many of them close allies. In May, Treasury Secretary Steven Mnuchin indicated that there had been progress on rolling back tariffs on steel and aluminum from Mexico and Canada. Those tariffs have been a significant sticking point in negotiations over a new North American free trade agreement.
China is the second-largest suppliers of auto parts to the U.S., with 12 percent of all imports in 2017, according to the Center for Automotive Research (CAR). CAR estimates that current tariffs could lead to job losses in excess of 300,000 in the U.S., and an average price increase of $2,750 for light-duty vehicles, accompanied by a reduction in sales of 1,319,700 units per year.
Last year, the Auto Care Association noted that a study by John Dunham and Associates found that the proposed 25 percent tariff on imported auto parts could result in the loss of $1.4 billion wages, as well as a job loss of 6,800 in the vehicle repair sector and 85,200 jobs in the auto care wholesale and retail segment, in addition to job losses of 17,800 in the auto parts manufacturing sector.
High cost of tariffs
While the purpose of the tariffs is to, ostensibly, drive trading partners into more favorable trade deals and increase the use of U.S.-made products, the results have been decidedly mixed. Consider the steel tariffs, which according to some estimates, have increased the cost of steel by as much as 41 percent. While that has been good for domestic steel producers, it has greatly increased production costs for other manufacturers. General Motors has already cut its own profit outlook in anticipation of a $300 million increase in commodity costs.
The American Action Forum, a conservative-leaning economic think tank, estimates that if all of President Trump’s tariffs were enacted, it could increase U.S. consumer costs by $66 billion annually. While increased steel profits have resulted in more jobs in that industry, the Peterson Institute estimates that each of those jobs costs nearly $900,000 to create.
China has already announced retaliatory tariffs that would increase to as much as 25 percent on $60 billion worth of U.S. imports this summer.
Automotive manufacturers and parts suppliers have opposed most of these tariffs, while agreeing in principle that something needs to be done to curb China’s trade abuses when it comes to steel dumping and intellectual property theft. Other sectors have also urged the administration to reach some sort of agreement and reduce the tariffs.
"We have been encouraged by the President’s optimism and remain deeply concerned about recent suggestions that China is backing away from progress made to date,” said Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce. "The American business community urges the Administration and the Chinese government to move forward expeditiously and in good faith to strike a high-standard, comprehensive, enforceable agreement, and end the tariffs now in place. Prolonging trade tensions and the escalation of tariffs are in neither country’s interest."
“A trade war will not solve our problems. So we look forward to the United States and China returning to the negotiating table to get this deal done as soon as possible,” said Jay Timmons, president and CEO of the National Association of Manufacturers.
Bills currently under consideration in the U.S. Senate would provide more control over the tariffs by Congress, but it’s unlikely that legislation will pass any time soon. One is a bipartisan bill that would give Congress authority to approve future tariff increases under Section 232 of the Trade Expansion Act. Another bill, sponsored by Senator Rob Portman (R-Ohio), would enable Congress to pass “disapproval resolutions” for controversial tariffs.