Imported car tariffs may be in the near future
President Trump’s most recent tariff idea after the aluminum and steel tariffs is on imported automobiles. Trump has stated that he would consider as high as a 25% tariff on all imported cars.
Similar to the aluminum and steel tariffs, the President will launch a Section 232 investigation, in which he tries to determine if the imports harm national security. Only if it passes this protocol can he impose the tariff.
It seems difficult to believe that imported cars harm national security, especially when they make car prices cheaper for consumers. It seems as if a tariff would only harm the consumer surplus of the American public. However, President Trump believes that it will bring more jobs to the US and boost the economy – which in reality is a very misguided forecast.
Plus, long-term, it is likely to start a tit-for-tat trade war with other countries. Just as the aluminum and steel tariffs disgruntled China and the European Union, causing backlash from them, this automobile tariff will more than likely produce the same effect.
Representatives from China and Japan have both stated that they will follow the investigation closely and proceed accordingly. In other words, if President Trump imposes a tariff, they will fire back with their own tariffs.
This would significantly harm not only the automobile market but the entirety of global trade. With mass globalization, every country is connected in some way or another. One tariff creates a domino effect that sends the world economy into a frenzy.
Imported cars are very popular in the US
Mexico and Canada currently export the most automobiles to the US, sending over $89 billion across borders annually. However, luckily for these firms as well as US citizens, it is likely that they will be exempt as new NAFTA negotiations roll out.
However, even the third- and fourth-biggest players have a big impact on the US economy. Moreover, Japanese car manufacturers exported $40 billion worth of vehicles last year, and Germany exported $20 billion worth.
Volkswagen will also take a massive blow, as 45% of their US sales are from international factories. Toyota faces a similar problem, with 30% of their US sales coming from across seas. Both companies saw their shares fall on Thursday, as Volkswagen (VLKAY) and Toyota (TM) dropped 2.5% and 3%, respectively.
Furthermore, tariffs will even hurt domestic car manufacturers. For example, GM manufactured 25% of its sold vehicles internationally. Although they are technically a US firm, they would still face the tariff rules on thousands of their cars.
Economists believe that instead of raising US tariffs, the Trump administration should negotiate lower rates for countries and conglomerates like the European Union. This would have the same effect for domestic car manufacturers – the prices would be cheaper in Europe for consumers, and they would demand more American cars. Consequently, supply would increase, which would create more jobs.
America achieved a similar result with China, who will reduce its tariffs on imported vehicles from 25% to 15% in July.
Although President Trump may have the highest intentions of boosting the economy and adding more domestic jobs, his logic is skewed. Tariffs are rarely the answer; in fact, they could severely damage not only the US but also the global economy.
Featured image via Pixabay/Pasja1000