TOKYO—Trump’s 25 percent tariff surcharge proposals on import autos and auto parts would have a potentially unintended adverse consequence on Detroit 3 automakers, according to The Prospect’s research.
The tariff, which Trump plans to slap on all imported motor vehicles probably from year-end, would add USD3,000 per vehicle, according to a Roland Berger analysis in March 2017. Much of that sticker price shock would hit American consumers and it likely would drag lower the annual U.S. auto sales, which have been running at 16-17 million vehicles in recent years.
‘(T)he Detroit 3 on average would be hit by USD1,500 cost increase, followed by the Asian manufacturers with around USD2,000,’ the report said. ‘The European (manufacturers based in the United States) would be hit by USD5,300 on average or even USD6,400′ for importers of European vehicles not assembled at all in the United States, it said.
The cost increases would wipe out automakers’ profits in the U.S. market ‘almost completely’ except for Ford and General Motors, even the two U.S. automakers would fall into losses on a global level, Roland Berger warned.
Furthermore, merely moving overseas auto manufacturing to the United States, which Trump champions as part of his ‘America First,’ say, from Mexico, would add USD1,200 costs, on top of billions of dollars of assembly plant investment, it said. ‘The border tax proposals may achieve the exact opposite,’ hitting American consumers and reducing vehicle sales and fewer jobs, it said.
Auto parts tariff impact. The 25 percent Trump tariff proposals are to be collected on auto parts, and that would mean cars with high domestic content ratios can be manufactured with less tariff impact than lower content ratio vehicles. On this front, Detroit 3 cars seem to bear the brunt equally hard as foreign automakers’ vehicles assembled in the United States.
The midsize SUVs, Buick Enclave, Chevrolet Traverse, and GMC Acadia local content ratios were 90 percent, meaning 9/10 of the cars were assembled with American-made parts, according to Frank DuBois, associate professor of the American University’s Kogod School of Business in his 2016 report.
But the ratios of other segment vehicles such as the Ford Explorer, Cadillac CTS, Jeep Cherokee were around 80 percent, or about the same as Honda Pilot and Toyota Sienna.
Tokyo-based industry officials say that given that vehicles around the world now rely on parts supplies from assemblers’ and parts makers’ supply chains, supply disruptions could trigger an all-out assembly halt as occurred during the 2011 northern Japan earthquake-tsunami-radiation-leakage disaster and Thailand flooding. That would hurt both foreign and Detroit 3 makers.
If Trump wants Made-in-America only cars, he’s got one but only: Tesla. Teslas are surely assembled in the United States but the batteries are not: They are supplied by Panasonic of Osaka.
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