The fondness for automobiles in the United States is unparalleled. Considered to be a symbol of the American dream, the passenger vehicle market in the U.S. is the second largest in the world – registering over 200 million units. Cars in America are sold in all shape and form – ranging from the efficient pick-up trucks to luxury sedans. As the U.S. president, Donald Trump, decides to slap tariff on imported automobile and auto products, the average price of all cars in America is poised to increase.
The slapping of tariff on auto parts and products is part of an ongoing process by the Trump administration to engage in a trade war with its allies. Trump’s rhetoric of ‘America First’ has seen him slap tariff not only on steel and aluminum but also on imports from China. In doing so, he wishes to make the American market more competitive by encouraging local products. According to him, added tariffs can also help cut down on the massive trade deficit that America currently owes to its allies.
However, the implications that his trade-war will have on American consumers is massive. While slapping tariff on foreign goods will increase manufacturing and production in the U.S., it will also result in an increase in prices for these items. All U.S. made cars have some foreign component in them – and slapping tariff on them will inevitably raise the price of the car itself. As estimated by the Peterson Institute for International Economics, Trump’s proposed tariff of 25% on auto products will raise the prices of top-selling cars from anywhere between $1,400 to $7,000. The biggest cost increase would be in the luxury models, which incorporate the most foreign parts or are made abroad. This could mean that the price of the much beloved BMW, manufactured in Germany, will see a surge of 20%.
While this decision by the Trump administration might look to favor Automobile industries, especially American ones, they have been quick to denounce it. Their competitive market price enables their customers to afford them, and an increase in price might see an overall reduction in sales. Almost all companies that build cars in America rely on imported parts, and imposing tariffs on them will raise their manufacturing cost as well. Brian Krinock, Toyota’s senior vice-president for North American factories, stated that, “there is no automaker that has 100 percent exclusively US-sourced parts. It is a global business with global operations.”
In the wake of the news, leaders of the EU have shown a willingness to negotiate a deal that could potentially cut existing European tariffs on American cars. Jean-Claude Juncker, president of the EU, expects that a leniency on trade from their side might stop a trade clash on cars. Economists have suggested that a full-blown trade war in the automotive sector could have far-reaching implications. Some also believe that Trump might be using the tariff as a leverage to pressure its NATO allied in re-writing an agreement more favorable to the U.S.
In 2017, the U.S imported vehicles worth $192 billion and auto parts worth $143 billion. Donald Trump’s naïve outlook towards trade might not only end up severing ties with its critical trade allies but can also impact the cost of cars in the United States.