The United States is in a trade war with China, Canada, Mexico, and the European Union. Now the U.S. is eyeing tariffs on imported autos and auto parts to protect its auto industry, but economists say this would have the reverse effect.
CGTN’s Karina Huber has more from Detroit.
Detroit, Michigan, known as Motor City, is the historical heart of the U.S. automotive industry. It’s where Henry Ford launched his Model-T and revolutionized assembly-line car production, helping turn the U.S. into a car manufacturing juggernaut.
But U.S. dominance in auto manufacturing has waned over the decades, which has been a key complaint of U.S. President Donald Trump. As part of his ‘America First’ mandate, he’s seeking to impose tariffs on foreign made autos and auto parts.
But some analysts say tariffs would hurt, not help, the industry, in part because supply chains are so global.
“I think of it as woven fabric. We have parts that go across the river to Canada, they come back again and are assembled. It’s a very complicated business,” said Michelle Krebs, Executive Analyst at AutoTrader.com
The immediate impact of tariffs would likely be to drive up prices for U.S. consumers.
The Alliance of Automobile Manufacturers predicts the average price of a new vehicle would increase by $5,800. That would hurt sales.
“You’d have to cut production at your factories. You have to lay off workers where they’re assembled. The supplier has to lay off people. The dealers have to lay off people because there just isn’t the business there,” said Krebs.
A report by the Peterson Institute for International Economics estimates auto tariffs would eliminate 195,000 U.S. jobs over a one- to three-year period. If other countries retaliate with their own tariffs, the job losses could balloon to 624,000.
China has already hit U.S. autos with extra tariffs in retaliation for U.S. tariffs on 34-billion dollars worth of Chinese goods.
This is worrisome for companies like General Motors. China is now its largest market. If sales drop in China, it could hurt GM’s profits. Protectionary measures also incentivize companies to shift production abroad to skirt tariffs.
“This is sort of like exacerbating the push or accelerating the push of the industry center from the United States to China. China will become even more important than it is now, if this thing goes through,” said Rick Johnson, Editor of Automotive News Print.
The U.S. Commerce Department is currently investigating whether auto imports threaten U.S. national security. It is the same reason the Trump administration used to justify tariffs on steel and aluminum. If the U.S proceeds with auto tariffs, Washington will likely face legal challenges at the World Trade Organization.
Shanjun Li discusses the impact of US tariffs on auto industry
CGTN’s Susan Roberts interviewed Shanju Li, Professor of Economics and Policy at Cornell University, on the imact that proposed U.S. sanctions would have on the U.S. automobile industry.