Wall Street investors aren’t the only ones growing worried about Pres. Donald Trump’s increasingly aggressive actions on international trade. Finding themselves in the crosshairs of a potential trade war, automakers are also sounding the alarm.
“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.,” the president tweeted this week, ahead of announcing $50 billion in tariffs on Chinese-made goods. The move quickly was mirrored by tariffs announced by China.
The tit-for-tat trade battle could lead to serious problems for a number of industries, including aerospace, agriculture and chip manufacturers – as well as the auto industry. Carmakers are also fretting over the president’s increasingly confrontational tone over NAFTA, trade with Europe and new tariffs on imported steel and aluminum.
Consumers, meanwhile, could feel the impact especially hard, with vehicle prices potentially rising by hundreds, and in some cases by tens of thousands, of dollars if things continue to escalate.
Domestic automakers could be hammered on a variety of fronts. But European brands, such as Mercedes, also are in danger of “losing momentum,” according to a report by the American International Automobile Dealers Association, due to new taxes on German-made cars the president threatened during a recent stump speech in Pittsburgh.
“We’re all concerned that in a market that’s slowing, we’re looking at a significant price increase” on German vehicles, Marc Cohen, an AIADA member and vice president of Priority 1 Automotive Group in Baltimore told the Bloomberg news service. “It’s gotten enough talk that it’s on our radar screen.”
Meanwhile, there is growing concern that the tariff battle with China that Trump kicked off this week could continue to escalate. Detroit automakers General Motors and Ford are major players in the Chinese market. While they produce most of their products in China, they now face a significant increase in tariffs on products they still import. California-based Tesla is even more at risk because it has yet to negotiate a deal to set up a factory in China and must export all its products from a factory near San Francisco.
“The assumption was China would not respond too aggressively and avoid escalating tensions. China’s response is a surprise for some people,” Julian Evans-Pritchard, Senior China Economist at Capital Economics, told the Reuters news service.
What especially surprised many observers was the speed with which China countered, just 11 hours after Washington outlined the U.S. plan. If there is any positive news it’s that neither side has actually laid out plans for the enforcement of the new tariffs yet.
That may explain why General Motors issued a relatively cautious response to the U.S.-Washington trade spat, rather than directly calling on the White House to back down.
“We support a positive trade relationship between the U.S. and China, and urge both countries to continue to engage in constructive dialogue and pursue sustainable trade policies,” GM said in a statement. “We continue to believe both countries value a vibrant auto industry and understand the interdependence between the world’s two largest automotive markets.”
It’s far from certain that Trump will now pull back, however, having made claims of unfair trade a cornerstone of his campaign for the White House. He also took direct aim at the auto industry for allegedly utilizing imbalanced trade policies to prop up profits at the cost of American jobs.
Ford, in particular, came under frequently withering criticism, then-candidate Trump threatening “a big border tax” if it went ahead with plans to move small car production to Mexico. GM and Toyota also were targets of Trump tweets.
(March auto sales rebound – but for how long? Click Here for more.)
The president has, in recent weeks, threatened to scuttle the North American Free Trade Agreement if partners Canada and Mexico don’t make major concessions. That could create “a major disruption” to the regional production network the industry has created, said David Cole, the director-emeritus of the Center for Automotive Research in Ann Arbor, Michigan.
(Click Here for more on what’s happening with NAFTA.)
Meanwhile, industry analysts are warning that new tariffs on imported steel and aluminum could add $200 to $300 to the price of the typical, American-made vehicle.
Prices could rising even more sharply for vehicles imported from Europe, the president last month warning there could soon be a 25% tax placed on cars imported from the European Union which, he declared during a press conference with Sweden’s prime minister, has “taken advantage of” the U.S. Currently, there is a 10% levy on autos and auto parts exported to Europe, while European automakers pay just 2.5% on tariffs for products coming to the States.
On some versions of the big Mercedes-Benz S-Class sedan, the threatened tariff increase could translate into more than $25,000 in higher costs for buyers. Even for a compact Volkswagen Golf, prices could surge by more than $5,000.
Some European automakers are at least partially shielded. BMW operates one of its largest plans in Spartanburg, South Carolina, and Mercedes and Volkswagen build some of their products in the States, as well. Volvo is getting ready to open a small assembly line in Charleston. But Jaguar Land Rover and Audi, among others, import all of their products.
Industry analysts note that the trade wars the Trump Administration is igniting couldn’t come along at a worse time for the auto industry. While car sales did gain momentum in March the industry posted its first decline last year since end of the Great Recession, and U.S. demand is expected to slip even more this year. The sudden, sharp slump in the stock market adds to such worries, especially if it is followed by an overall cooling of the American economy.
(To see more about the potential consequences of a trade war, Click Here.)