U.S. tariffs of 25 per cent on imported vehicles and auto parts would send automobile prices soaring in the United States, causing sales to fall by two million units and wiping out more than 700,000 jobs at car companies, parts makers and dealerships, a Center for Automotive Research (CAR) study says.
The industry think tank released an assessment of the impact of tariffs on Thursday as key industry groups and representatives of the Canadian and Ontario governments publicly presented arguments to the U.S. Commerce Department at a hearing in Washington about the harm U.S. duties would do to the economy.
Those two governments, representatives of the European Union and Japan, and a broad range of auto industry groups opposed the imposition of tariffs and said they would harm the U.S. economy and U.S. jobs more than they would help.
Canada’s deputy ambassador to the United States, Kirsten Hillman, warned that Canada would respond to U.S. tariffs with its own levies on imports of U.S.-made vehicles and auto parts, a tit-for-tat retaliation that economists and senior industry executives have warned could lead to a recession in both countries.
The Commerce Department is studying tariffs on imported vehicles as part of President Donald Trump’s America First trade strategy, which has so far led to tariffs on steel and aluminum from Canada and several other countries, duties on US$200-billion worth of goods from China, and retaliatory tariffs from U.S. trading partners.
The CAR study found that prices would rise US$4,400 on imported vehicles sold in the United States if a 25-per-cent tariff is applied to all vehicle and parts imports, including those from its North American free-trade agreement (NAFTA) partners, Canada and Mexico. That is one of six potential scenarios the centre studied, but appears to be the most likely one based on how the steel and aluminum duties were applied.
In that case, Canada and Mexico were granted an initial exemption, but the U.S. administration eliminated it amid its unhappiness about the progress of talks on a new NAFTA agreement. Canada and Mexico retaliated with tariffs on U.S. steel and aluminum as well as other products.
The CAR report underlines what the auto industry and other analysts have been saying since the Commerce Department announced in May that it was investigating auto tariffs under Section 232 of the 1962 Trade Expansion Act.
“U.S. automotive and automotive parts manufacturers would not benefit from tariff or quota protection,” the study says.
That is because all U.S.-made vehicles include imported content, while substantial amounts of U.S.-built parts and components are exported to be assembled in vehicles built outside the United States.
Instead of causing U.S. employment to grow, the tariffs would eliminate 714,000 jobs, and the U.S. gross domestic product would take a US$59.2-billion hit.
“Over 70 per cent of 2017 U.S. auto parts exports were to Canada and Mexico, so including these two trading partners in the trade action would be particularly harmful to U.S. automotive parts producers,” the study says.
Canada would take a hit also, because about half the $35-billion in Canadian auto-parts production annually is exported to the United States, while about 85 per cent of the more than two million vehicles assembled in this country are shipped to the U.S. market.
The study notes that imported vehicles make up 48 per cent of the U.S. market. But about half that number are from Canada and Mexico, and are duty-free because of NAFTA.
About 25 per cent of vehicles sold in the United States were produced by Asia and Europe-based auto manufacturers that operate assembly plants in the United States, many of them in southern states that gave Mr. Trump large pluralities in the 2016 presidential election.
Kristin Dziczek, CAR’s vice-president of industry, labour and economics and one of the authors of the study, said the centre has not concluded how retaliatory tariffs by Canada and Mexico would affect the U.S. economy.
“A retaliatory tariff on U.S.-built cars and trucks would be expected and would make imports from other countries far more attractive [in Canada],” Ms. Dziczek said.
Vehicle companies with assembly plants in Canada will try to turn more of their production to Canadian sales and exports to other trading partners, she said.