Tariffs on Autos and Auto Parts

NEW TARIFFS WILL MEAN HIGHER PRICES AND LOST U.S. JOBS

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ISSUE

The auto industry has serious concerns as the administration considers imposing new tariffs of up to 25 percent on imported automobiles and auto parts. While NADA supports President Trump’s goals of modernizing our trade agreements and moving toward freer and fairer trade, steep new tariffs would hurt the auto industry and its consumers. As no vehicle is built or assembled with 100 percent domestically made parts, any new auto tariffs would impact all dealers due to increased import prices, stifled demand for new vehicles, and lost jobs.

BACKGROUND

On May 23, 2018, the Department of Commerce (DOC) initiated an investigation under Section 232 of the Trade Expansion Act to determine whether imported automobiles and automotive parts threaten U.S. national security. The DOC’s report on this investigation could include recommendations for tariffs or import quotas. The findings of this investigation were submitted to the President on February 17, 2019. While not yet public, this report could allow the President to impose new tariffs of up to 25 percent on imported automobiles and auto parts. This would drastically impact auto and auto part import costs, leading to depressed vehicle sales and job losses.

Auto manufacturing is a global industry, with manufacturers sourcing parts from a vast network of suppliers around the globe. Auto and auto parts manufacturers frequently utilize NAFTA and other trade agreements to ship their products across multiple borders before final assembly and retail sale. As a result, even domestically assembled cars have significant imported content, and there is no “100 percent American-made car.” The average vehicle assembled in the U.S. has an international parts content of 40 percent, and 48 percent of vehicles sold in the U.S. are imported.

Imposing tariffs on imported automobiles and auto parts would raise the price of all vehicles. NADA commissioned the Center for Automotive Research (CAR) to study several combinations of trade policies, including imposition of Section 232 auto and auto parts tariffs combined with the United States-Mexico-Canada Agreement with exemptions for Canada, Mexico and South Korea. Even under this scenario, U.S. vehicle prices would rise an average of $2,750, as many as 367,000 U.S. jobs would be lost, and U.S. new vehicle sales would drop by 1.3 million vehicles per year.

KEY POINTS

  • Increased autos and auto parts tariffs would increase the price of vehicles for domestic and international brands. According to the CAR study, vehicle prices would rise an average of $2,750. Many consumers will be forced into the used car market as new tariffs would also affect used-vehicle prices, which historically rise with new car prices.
  • Price increases due to tariffs will cost jobs and hurt the economy. According to the CAR Study, price increases due to tariffs would result in a decline of up to 1.3 million units in vehicle sales. Weakening sales would result in 367,000 American jobs lost, and new-car dealerships would lose 77,000 employees out of the 1.1 million Americans currently working at franchised dealerships.
  • NADA supports leveling the playing field for American workers, but the negative and unintended consequences of imposing broad tariffs on consumers and the economy outweigh potential gains. Franchised dealerships provided 18 percent of total U.S. retail sales and vehicle sales are major generators of sales and payroll tax revenue for all levels of government.

STATUS

NADA testified before the Department of Commerce in July 2018 to raise concerns about Section 232 auto tariffs. President Trump has until May 18 to announce his next actions, if any, regarding DOC’s Section 232 investigation. Congress must ensure that any new trade initiatives do not unduly increase vehicle prices, stifle demand for new vehicles, or jeopardize American jobs.

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March 25, 2019