Trump's Proposed Auto Tariffs Would Throw US Automakers Under the Bus

President Trump's proposed 25% duties on imports of autos and parts will have negative consequences for US automakers

A new Peterson Institute analysis shows that if President Trump is able to enact these duties, production in these industries would fall 1.5% and cause 195,000 US workers to lose their jobs over a 1- to 3-year period or possibly longer. The US auto and parts industries would shed 1.9% of their labor force. The potential trade action would affect more than $200 billion in US imports. This assumes that there are no exceptions as n the case of steel and aluminum.

If other countries retaliate in-kind with tariffs on the same products, production would fall 4% and 624,000 US jobs would be lost, and 5% of the workforce in the auto and parts industries would be displaced. This second scenario would also hurt US exports of these products more than imports. However, the aggregate effects on the US economy in either scenario would be small.

Both scenarios demonstrate how reliant the domestic industries are on imported parts, or intermediate inputs, that are not produced in the United States or that have no easy US-made substitute. Tariffs would raise the cost of these parts and domestic production, which makes products more expensive to consumers and lowers demand for them in the United States and abroad. Consumers could expect to see prices rise for both imported and domestically produced vehicles. Companies would have to decide how much of the additional costs should be passed along to consumers or if they will reduce profits and absorb additional costs.

COMPARING TRUMP'S TARIFFS SO FAR

The proposed auto tariffs would cover at minimum $208 billion of imports, not including auto parts (table 2). This figure surpasses all of Trump's previous tariffs combined, including those that have already been imposed, still under consideration, and temporarily exempted for certain countries.

HOW MUCH WOULD THE TARIFFS HIT IMPORTS?

In 2017, the United States imported $183.8 billion of passenger cars, SUVs, and minivans, mostly from the European Union ($46.6 billion), Canada ($43.3 billion), and Japan ($43 billion) (table 3). Total imports of trucks reached $26.4 billion, of which 92 percent came from NAFTA partners (Mexico accounted for $22.8 billion; Canada, $1.4 billion) (table 4).

Current US tariff rates on cars are 2.5 percent and on trucks 25 percent. So the proposed additional auto tariff would affect the full $183.8 billion of car imports and $24.2 billion dollars of truck imports—the amount that comes from Canada and Mexico, since those rates are currently zero under NAFTA—totaling $208 billion. These figures understate the total amount that would be covered since they do not include auto parts.

HOW MUCH ARE US EXPORTS VULNERABLE TO LOSSES?

Exports of US vehicles and parts may suffer if trading partners retaliate against these products or if increased production costs make American-made cars more expensive for consumers abroad. In 2017, the United States exported $51.1 billion of passenger cars, SUVs, and minivans primarily to Canada, China, and the European Union. Truck exports of $15.1 billion went almost entirely to Canada.

The investigation falls under Section 232 of the Trade Expansion Act of 1962, which gives the president broad latitude to impose tariffs or other measures to restrict imports that have been determined to threaten or impair US national security. Under the law, the investigation could last until February 17, 2019 (270 days). Public hearings are scheduled for July 19–20, 2018. The previous national security investigations on steel and aluminum took almost the full allotted period. If the investigation concludes the imports do impair national security, Trump then has 90 days to impose whatever remedial import restrictions or other policy actions he decides are needed

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