How To Treat Auto Tariffs?
In 2017, 17.3 million light vehicles were sold in the U.S., one of the largest vehicle markets in the world. But this market doesn't have closed borders. Of the total light vehicles sold in the U.S. last year, roughly 44% were imported.
Imported autos and parts, which totaled $320 billion last year, made up roughly 14% of America's total imported goods. That's much larger than the steel and aluminum industry's $45 billion, which represents only about a 2% slice.
North American Free Trade Agreement countries are the largest exporters of motor vehicles and parts to the U.S.; 32% of such goods come from Mexico and 18% from Canada. Under the free-trade dynamic of Nafta, multinational auto makers have built their production networks and supply chains across the whole North American area, assuming products can flow freely among the Nafta countries. General Motors (GM) and Ford Motor (F), for example, both have large Canadian operations, producing massive amounts of vehicles there for sale in the U.S. market. The proposed auto tariffs, if set in place, would severely disrupt the flow, and directly impact consumer prices.
Not only will tariffs increase the prices of imported cars for U.S. consumers, it might also backfire and hurt the overseas sales of American-made vehicles due to the auto industry's globalized supply chain.
Most consumers (and investors) see the final product, i.e., a vehicle, without realizing the orchestrated nature by which a car morphs into a car, a truck into a truck.
Imported goods comprise 35% of the value of U.S. auto exports. That means that every three dollars' worth of automobiles produced in America includes more than a dollar in value from another country. Higher costs for imported parts will increase the sticker prices of cars produced for export and for the American market, as well.