NADA: Auto Tariffs Will Raise Prices, Limit Choice and Depress Demand for New Cars and Trucks

TYSONS, Va. (July 2, 2018)—In comments filed Friday to the U.S. Department of Commerce, NADA made it clear that America’s automobile dealers oppose the imposition of new tariffs or quotas on imported automobiles or automotive parts. NADA fears that any new tariffs or quotas will result in higher vehicle prices and reduced choice for the American automobile buying public.

NADA fully appreciates the Administration’s trade goals, including enhancing the domestic production, sale, and export of American-made automobiles and automotive parts; curbing unfair foreign trade practices involving automobiles and automotive parts; and reducing America’s trade deficits and increasing domestic jobs for Americans. But broad-based tariffs will result in significant negative impacts on NADA’s 100% American automobile dealers and the American working families and American businesses who buy automobiles and automotive parts from them. These impacts include higher vehicle prices, as well as a reduction in the number, or even the elimination, of imported vehicle models, thereby reducing competition and customer choice, and ultimately depressing demand.

“The president is rightfully concerned about trade imbalances and manufacturing jobs in the United States,” said NADA President and CEO Peter Welch. “But automobile production today is so deeply integrated across international boundaries that virtually all cars and trucks, domestic and international, have foreign components even if they are assembled in the United States. And a tariff, depending on how it is implemented, could raise prices dramatically for customers and threaten auto industry jobs at home. We look forward to working with the Administration to find solutions that don’t dramatically increase prices or limit choices for our customers.”

NADA’s comments were filed with the Commerce Department in response to proceedings being conducted under section 232 of the Trade Expansion Act of 1962 intended to determine the effects on the national security of imported automobiles, including cars, SUVs, vans and light trucks, and of imported automotive parts.

Read NADA's full submission here. The following is a summary of the key points made in NADA’s comments:

1.      Prior Section 232 proceedings: There have been several prior proceedings under Section 232 of the Trade Expansion Act of 1962 which inform the current proceeding. These reveal that a national security risk determination pursuant to Section 232 need not necessarily lead to recommendations for import tariffs or quotas, let alone to their imposition by the President. In fact, as illustrated by several past Section 232 proceedings, it often has proven beneficial for the national security and the domestic economy to consider and impose alternative strategies. Ultimately, these prior investigations suggest that, here, it is crucial for the Department of Commerce to recognize that:

  • domestic U.S. production can meet current and prospective national security requirements; and
  • the imports at issue are primarily from reliable sources located in countries that are our allies.

2.      Application of the decisional criteria identified by the Commerce Department: In initiating this proceeding, the Department of Commerce identified several criteria to be used in determining whether auto and auto parts imports adversely affect the national security of the U.S. Specific application of those criteria to the facts surrounding the U.S. auto industry reveals that the Department is unlikely to be justified in making such a finding. Indeed, given the adverse impacts on auto consumers outlined below, the broad imposition of auto tariffs could themselves adversely impact America’s military readiness by imposing new and unwanted financial and other burdens on our nation’s military servicemen and women and their families. 

3.      The likely, if unintended, impact of imposing tariffs on auto and auto parts imports: Nonetheless, if the Commerce Department were to make a finding that auto and auto imports adversely affected America’s national security, however unjustified, it is essential that the Department recognize and fully consider the potential downside impacts any new tariffs or quotas would have on American automobile and automotive parts purchasers, and on American franchised automobile dealerships. These include:

  • Higher prices for new vehicles. For example, the average transaction price for an automobile in March 2018 was $35,450. If a 25% tariff were to be imposed on the dutiable value of an imported automobile retailing for that amount, and the full tariff amount were to be passed on, its average price would exceed $43,000.
  • Reduction in consumer choice. A reduction in the number, or even the elimination, of imported vehicle models would reduce competition and customer choice across the board.
  • Higher prices for used vehicles. Since used automobiles are substitute goods for new vehicles, when the price of new automobiles rise, used automobile prices also rise.
  • Depressed demand. As automobile and parts prices increase, dealers will likely lose sales as prospective customers turn to other new or used parts and automobiles.
  • A loss of dealership jobs. Historically, a fall-off in dealership sales leads to a correlated fall-off in dealership employment.
  • A loss of taxes. Vehicle sales are major revenue generators for all levels of government, but particularly at the state level.
  • A decline in fleet turnover. Any decline in new vehicle sales inhibits fleet turnover, which in turn undermines the benefits associated with getting safer, cleaner, and more efficient vehicles onto the road.
  • Deferred maintenance and repair. Higher parts prices will lead to a deferred demand for automobile service and repair which could raise safety concerns, in addition to economic impacts.
  • Higher insurance rates. As crash parts prices increase, so too will the cost of accident repairs and the cost of automobile insurance.
  • Increased inflation. Tariffs would lead to serious inflationary increases in the prices consumers pay for cars and other products and, worse yet, to job losses for working families when inevitable retaliatory tariffs are imposed.