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Trump’s Looming Auto Tariffs Threaten to Bulldoze Struggling Car Industry – and the Economy

Last Updated September 23, 2020 1:15 PM
Sam Bourgi
Last Updated September 23, 2020 1:15 PM
  • The White House has until Nov. 13 to decide whether to slap 25% tariffs on auto imports.
  • Republicans, in general, are against taxing auto parts as the cost passed on to consumers would be exorbitant.
  • Higher auto costs accelerate the slowdown in U.S. car sales and put a dent in consumer spending – the primary driver of the U.S. economy.

The Trump administration has less than two weeks to decide whether it will go ahead with its proposed tariffs on Asian and European auto imports – measures that were first identified in May to allay concerns about national security risks.

The decision could have far-reaching consequences on the economy, not to mention President Trump’s reelection bid.

Decision on Auto Tariffs Looming

In just 11 days, the White House must decide whether it will slap tariffs of up to 25% on automotive imports from Japan and the European Union (EU). As The Wall Street Journal reports , the proposed duty would jack up the price of imported cars by $6,875. The average price of a vehicle sold in the United States would also rise by $4,400 as even domestic producers rely on foreign supply chains.

Moving ahead with the proposed tariffs could alienate President Trump’s Republican allies within Congress. Several GOP Senators have urged the president to avoid car tariffs, as the blowback among Republican voters could be swift.

Pat Toomey, a Republican Senator from Pennsylvania, said tariffs on auto parts would instigate a full-blown trade war as European manufacturers quickly retaliate.

Toomey says (as per WSJ),

“The Europeans are not going to just sit by idly and just say ’OK, we’ll just sell fewer cars. They will retaliate.”

The Trump administration is unlikely to face any legal ramifications if it decides to implement tariffs because the Commerce Department has already determined that auto imports pose a threat to national security. According to the Trade Expansion Act of 1962, the president has six months to move ahead with tariffs once the Commerce Department releases its findings. Automotive imports were listed as security risks back in May.

Auto Industry Under Pressure

Record-low interest rates across much of the advanced industrialized world triggered a sharp rise in auto sales following the 2008 financial crisis. Global sales peaked at 97.08 million in 2017 before declining slightly in 2018 – right around the time the global economy began to buckle under the weight of trade-war hysteria.

Auto sales
Global auto sales may have peaked in 2017. | Chart: The Wall Street Journal 

In the United States, auto sales are forecast to drop  to 16.9 million in 2019 from 17.3 million a year earlier, according to Edmunds. AlixPartners, a U.S.-based consulting firm, is forecasting a further dip to 16.3 million in 2020.

America’s major automakers reported mixed results in the third quarter, with the ‘big three’ Detroit manufacturers posting a decline in sales  over that stretch. General Motors Co saw its sales fall 6.3% annually between July and September. Sales at Ford Motor Co dropped nearly 5% during the quarter. Fiat Chrysler Automobiles fared slightly better as sales flat-lined over year-ago levels.

Slumping auto sales are a sign that consumer sentiment is souring despite multiple rate cuts by the Federal Reserve. Earlier this week, the Commerce Department said the U.S. economy expanded 1.9% annually in the third quarter. Though higher than expected, it was the third time in four quarters that GDP failed to break 2%.