LONDON, Aug. 20, 2018 /PRNewswire/ --President Trump's proposed tariffs threaten to raise the cost of a new imported vehicle by thousands of dollars. Since even American-made cars include parts imported from foreign suppliers, these tariffs will wreak havoc on the North American and global vehicle supply chains, with America's closest allies bearing the brunt of this action.
On 25 May, the Trump administration launched a Section 232 investigation to determine whether imports of vehicles and car parts are a threat to US national security. The president is proposing a tariff of 25% on those imports in the future and whilst this is a significant hike from the current 2.5% tariff on imports, it is similar to the existing 25% import tariff that the US has levied on pick-up trucks since 1964.
This investigation into the vehicle sector truly strikes at the heart of EU and Asian exports to the US. Although the impact of tariffs on the US economy will take time to be fully realised, the impact on exporting partners would be more immediate because America's demand for vehicles will be difficult to replace in the near term. In 2017, the US imported $225 bn of vehicles and parts from 161 different countries. Of this, there are seven major countries whose combined exports to the US account for 90% of all imports in these categories. They are, in order: Mexico, Canada, Germany, Japan, South Korea, China and the UK. Earlier this year, a similar 232 investigation into imports of steel and aluminium resulted in the introduction of a 25% tariff on steel and a 10% tariff on aluminium. With the exception of China, the potential tariff on US imports of vehicles and parts would hit these countries harder than the Section 232 on aluminium and steel.
US vehicle tariffs are a Demolition Derby with no winners
The US relies heavily on imports to meet vehicle demand and imports far exceed exports. In 2017, imports amounted to nearly $294 bn versus just $130 bn exported. Autos account for over 15% of overall US imports, making this the largest category of products brought to US shores. This is much greater than steel and aluminium imports, which were deemed a national threat, as they account for just over 1% of total US imports.
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