The latest tariffs on the automotive sector of US President Donald Trump have made one thing clear, experts say. The US is no longer a beacon of free market trade, and businesses need to switch to the “America-first” reality.
On Wednesday, Trump announced 25% tariffs starting this Thursday on all cars, light trucks and auto parts, experts in moves called “devastating” by the industry.
Nearly half of the 16 million cars sold in the US last year were imported for a total of over $330 billion, according to news reports citing analysts at Goldman Sachs.
It is not clear whether tariffs will be enforced as laid out in Trump’s latest announcement, or whether there will be exceptions or rollbacks.
“But one thing we certainly know,” said Ilhan Gekkir, senior economist at Anderson Economic Group (AEG), “Trump’s policy is protectionist and not free markets and free trade in the way the US did. [things] For decades. Now it’s changing. …That’s the new rule, and businesses need to play accordingly and increase their business presence in the US. ”
Some automakers, including South Korea’s Hyundai and KIA, have announced plans to boost production in the US.
It gives the impression that Trump is entitled to insist that tariffs enforce more production in the US, but the bigger picture is more complicated, Geckil said.
“The US is really the best in terms of market size,” Geckil said, explaining why automakers don’t want to lose access to the US market.
However, the reason many manufacturing companies moved from the US was to take advantage of lower prices and cheaper products.
He said that bringing manufacturing back to the US will result in higher prices for products and creating demand.
“Prices will rise significantly, and that will have a ripple effect,” Geckil said, expecting to see high sticker prices in the month or so when tariffs kick in about a month.
“A $50,000 vehicle will be a $75,000-$80,000 vehicle in a few years, and that price hike will stay there forever,” he said.
That ultimately leads to unemployment, despite Trump’s goal of protecting American workers, Geckil said.
According to previous estimates by AEG, the tariff proposals that Trump surfaced in February will raise the prices of cars assembled in the US, Canada and Mexico for most vehicles to $4,000 to $10,000 and more than $12,000 for electric vehicles (EVs).
The estimates did not include the effects of retaliatory tariffs that other countries may impose.
Additionally, Trump’s 25% tariffs on steel and aluminum, which began on March 12, are expected to increase the price of traditional engine vehicles from $250 to $800, and EV prices by more than $2,500.
AEG said the measures announced on March 26 would be “more expensive” for European and Asian cars than previous estimates, and were potentially expensive or expensive for vehicles produced in North America.
“The impact of tariffs is likely to be significant across the industry — affecting automakers, suppliers, dealers and customers,” Ford CEO Jim Farley told employees in an email Friday. He issued a warning, despite roughly 80% of Ford vehicles sold in the US being assembled domestically.
Integrated Industry
One reason automobile prices have such a wide range of impacts is that industries from different countries are so deeply intertwined.
Since signing the agreement in 1965 that promoted the tax-free vehicle and parts movement in Canada, David Adams has been widely integrated in the US and Canada automotive industry.
Then, free trade agreements continued in 1989 and 1994, further detaining the industries of both countries and Mexico.
Over the years, the three countries have built specific automotive parts specialties, Adams said.
For example, it is cheaper to work in Canada in the US, as Canadian dollars are usually lower than US dollars and Canada has a public health system, employers usually don’t have to pay for workers’ health insurance costs.
For vehicles made in Canada, half of the parts are from the US, while for parts made in Mexico, 30% to 35% of those parts are on average from the US.
“By being involved in Canadian vehicles, you are effectively imposing tariffs on American suppliers,” Adams told Al Jazeera.
Prices are almost certainly more spiral as Canada and Mexico, and all other countries with the latest tariffs, are likely to retaliate.
“We don’t want to cut our noses to stare in our faces, but seeing hurts everyone… Because of the degree of integration, the impact will be the same on both sides,” Adams said.
The tariffs on automotive parts that do not apply to components considered “US content” make things even more complicated.
In automotive production, raw materials are usually transformed into components in one jurisdiction, then folded into larger components or components elsewhere. It is common for parts to cross the boundary 3-5 times per vehicle.
In reality, this means that tariff burdens can vary widely between different companies and vehicles.
“It’s very confusing and complicated,” Adams said.
“Trump’s desire doesn’t seem to be to have a Canadian auto sector. But it costs $50-$600 billion to move everything to the US. This is not a short-term proposal. Ultimately, we can focus on business as it creates stability not just in the auto sector but also in the North American economy.”
The solution should include Mexico as the globally competitive automotive industry requires low-cost regions to implement the most labour-intensive part of the manufacturing process, Adams said.
“That’s part of the current challenge [Trump] We see the automotive industry from myopia in the automotive sector as an American industry rather than North American industry,” he said.
In addition to the uncertainty that lies in the sector, it is Trump’s pledge to impose “mutual” tariffs on all countries, and the obligations that suspected of not staving the flow of fentanyl and undocumented immigration to the United States.
Brett House, a professor of economics at Columbia University’s business school, said that given the largely flow of fentanyl from Canada to the US, some of Trump’s alleged grounds for tariffs are based on “false” information.
“The so-called data that the Trump White House has is absolutely wrong,” House told Al Jazeera.
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