Auto industry can tolerate Trump tariffs for just a few weeks
President Trump talks 25% tariffs to Mexico, Canada beginning March 4
As for an increase to China tariffs, Trump said “It depends on what they do with their currency. It depends on what they do in terms of retaliation.”
Reuters
- President Trump’s 25% tariffs on goods from Canada and Mexico are expected to have a significant impact on the auto industry.
- Experts predict that the tariffs will lead to higher consumer prices, job losses, and potential closures of auto parts suppliers.
- Industry leaders are urging the Trump administration to reconsider the tariffs and seek alternative solutions to address trade concerns.
The auto industry can withstand only a few weeks of President Donald Trump’s 25% tariffs against Canada and Mexico until costs to automakers and suppliers rise astronomically, resulting in higher consumer prices and risking massive job losses, experts said Tuesday.
The industry reacted to Trump’s move at midnight to put 25% tariffs — the taxes paid on products when they cross international borders — on goods coming into the United States from Canada and Mexico.
Trump also increased tariffs on goods from China by another 10% on top of the 10% he enacted last month. Trump said the moves will push manufacturers to build more things in the United States.
The industry cannot quickly end foreign production and stand up domestic factories, with billions invested in long-term product cycles. In addition, U.S. automakers get a number of components for domestic assembly from Canada, Mexico and China. On top of that, the Detroit Three each build vehicles in Canada and Mexico that they sell in the United States. Ford Motor Co. and General Motors build vehicles in China that they sell in the states.
The tariffs mean the industry has weeks to figure out how to mitigate any production disruptions and absorb any increased costs before things really go off the rails, experts said.
“The tariffs will have a hugely negative impact on the auto industry and the economy as a whole,” said Sam Abuelsamid, vice president of market research at Telemetry Insights. “In the immediate future, the impact will be somewhat muted because of the inventory that’s already in the pipeline that hasn’t been subjected to the tariffs. But once we get past a few weeks, the effects will start to get quite profound even for vehicles that are assembled in the U.S.”
Profits won’t cover added costs
That’s because the auto industry doesn’t have the profit margins to fully absorb the extra 25% in costs, most of which will have to be passed on to consumers, Abuelsamid said.
“There are as many as 30,000 individual parts that go into a modern vehicle, with many of those ultimately crossing borders multiple times before a finished vehicle rolls off the assembly line,” Abuelsamid said. “From raw materials to increasingly complex subassemblies and then the final vehicle, each time something crosses the border, a tariff is assessed and paid by the importer, not the country that is exporting the product.”
He added: “For example, Ford will pay tariffs on gas V8 engines it brings in from Windsor and diesel V8s from Mexico that it puts into F-Series trucks. While those trucks are built in Dearborn, Kansas City and Louisville, those engines represent a significant portion of the value of the vehicle and there will be price increases to offset the tariffs on those engines and other components.”
Wall Street realized this potential impact on the automakers and reacted Tuesday by selling stock in the Detroit Three. GM’s stock price by early afternoon had plummeted by 3.1%, Ford was down 2% and Stellantis — the maker of Chrysler, Dodge, Jeep, Ram and Fiat brands — saw its stock price tumble 4.5%.
Job losses, supplier closures, recession outlook
The consensus among most experts is that costs will rise immediately, but manufacturers will absorb the added costs for a month or two.
“After that, consumers will likely see a 5% to 10% rise in prices,” said Sam Fiorani, vice president of global vehicle forecasting at Auto Forecast Solutions. “If cooler heads prevail, this first round will be over before April.”
Jeff Schott, a senior fellow at the Peterson Institute for International Economics, said estimates that the tariffs would increase vehicle prices by up to $12,000 will have an impact.
“That’s got to reduce demand for those vehicles from U.S. consumers because that’s too big a bite to bear in the pocketbook,” he said. “The big question is the duration of the tariffs and whether the tariffs will be extended to other countries.”
Edmunds.com data showed that the average transaction price for a new vehicle in…
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