Who Stands to Lose Most From Threatened Auto Tariffs

(Bloomberg) -- Governments, corporate executives and consumers will all be watching a meeting this week between President Donald Trump and the head of the European Union’s executive arm, Jean-Claude Juncker, who hopes to forestall a major escalation in the global trade war. The U.S. is deciding whether to impose tariffs as high as 25 percent on car imports as part of Trump’s bid to reduce the $566 billion U.S. trade deficit. The proposal has drawn opposition not just from Japan, Mexico, Canada and Germany, among others, but from U.S. automakers as well.

1. How would auto tariffs be felt?

In ways small -- higher prices facing car buyers -- and big: If the U.S. follows through on all its tariff threats, world economic output would be 0.5 percent less in two years, according to the International Monetary Fund.

2. How drastic would the impact be on car prices?

A 25 percent tariff on auto imports would raise the price of new cars sold in the U.S. -- even ones built in the U.S., because they typically include parts made elsewhere. The National Automobile Dealers Association estimates that the tariffs would add as much as $2,270 to the cost of U.S.-built cars and $6,875 to the cost of imported cars and trucks. The European Commission estimates that the same level of tariffs would add 10,000 euros ($11,700) to the sticker price of European-built imports into the U.S.

3. Who would be hardest hit?

It could well be the U.S., according to the Washington-based IMF, which estimates that American economic output would be 0.8 percent lower one year into the global trade conflict. The big three automakers, General Motors Co., Ford Motor Co. and Fiat Chrysler, build about 1.2 million vehicles in Canada, 90 percent of which are exported to the U.S., according to an internal EU memo. General Motors said tariffs “could lead to a smaller GM” and force it to cut jobs by increasing costs and spurring retaliation from other countries. The American Automotive Policy Council, on behalf of GM, Ford and Fiat Chrysler, estimated that a 25 percent levy would create an $83 billion tax burden for the U.S. auto industry and consumers. Jeff Schuster at researcher LMC Automotive estimates that tariffs could cost the U.S. auto industry at least one million annual vehicle sales.

4. Then why would the Trump administration do this?

Trump campaigned on promises to even out what he sees as inequities created by the current multilateral trade system. He’s gone so far as to call the EU a “foe” of the U.S. on trade issues. Commerce Secretary Wilbur Ross said earlier this year, “The reason we harp so much on autos and the reason we harp so much on China, if you look at our trade deficit, it fundamentally has two components: one is geographic and that’s China and the other is a product and that’s automobiles.”

5. What exactly is Trump threatening to do?

His administration is investigating whether to use a Cold War-era law -- Section 232 of the Trade Expansion Act of 1962 -- to impose tariffs as high as 25 percent on all cars and car parts entering the nation. This law gives the president latitude to adjust imports if there is a national security threat. Trump used the same justification to hit steel and aluminum imports with tariffs earlier this year.

6. How big is this market?

The U.S. imported about $350 billion of cars and car parts in 2017 -- $62 billion of which originated in the 28-nation EU, according to U.S. government data. In the same year, the country exported about $155 billion in cars and car parts, $18 billion of which went to the EU.

7. How would Europe respond to U.S. tariffs?

The EU may target American goods -- not necessarily cars -- worth about 20 percent of the value of goods hit by U.S. tariffs, according to two officials with knowledge of the deliberations. The level of the EU’s retaliatory tariffs would probably match the U.S. levels, which could be as high as 25 percent. If the U.S. were to hit all EU auto imports with tariffs, then it’s likely that the EU would retaliate against about 12 billion euros of American goods. In comparison, European levies in response to the U.S. steel and aluminum tariffs applied to 2.8 billion euros ($3.3 billion) of American goods.

8. Who else would be part of this fight?

Japan, which exports 1.7 million autos to the U.S. each year, is threatening to respond with its own tariffs. Mexico exports 2.4 million autos, including its most popular export, the Chevy Silverado. Canada exports 1.8 million autos; motor vehicles and parts represented about 16 percent of Canada’s export value for the first four months of 2018.

The Reference Shelf

• For car companies, tariffs could take away what tax cuts gave.
• Here’s the U.S. law on trade as a national security issue.
• The Commerce Department has a Q&A on its Section 232 investigations.
• Some in Congress would like to limit Trump’s ability to invoke Section 232.
• QuickTake Q&As on Trump’s “Buy America initiative” and why Trump may drive the EU and China closer on trade.
• A QuickTake explainer on free trade and its foes.

To contact the reporters on this story: Richard Bravo in Brussels at rbravo5@bloomberg.net;Sarah Gardner in Southfield at sgardner65@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Laurence Arnold, Ben Sills

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