We’d been planning on buying an SUV at the end of the summer. With all this sudden talk of tariffs, should be we be doing it sooner? We’re not quite ready and have just started looking. – Chantal, Montreal
Massive Trump tariffs on cars could decimate the auto industry – but that doesn’t mean you should be spooked into buying a car this weekend.
“The eventual effects on vehicle pricing and availability would be apocalyptic, but not by the end of this summer,” said George Iny, president of the Automobile Protection Association (APA). “I believe that it will take more mayhem before [the North American Free-Trade Agreement] is unravelled, if that ever happens, so [you are] likely safe until the end of the model year.”
The U.S. announced it’s considering adding a 25-per-cent tariff on Canadian auto imports to its 25-per-cent tariff on steel and 10-per-cent tariff on aluminum.
The U.S Commerce Department has six months to conduct an investigation into auto tariffs and decide whether to recommend them.
“A trade war is like a normal war – seldom are there any winners,” said Brian Murphy, vice-president of research and editorial with Canadian Black Book.
Right now, Canada charges a 6.1 per cent tariff on imported passenger vehicles and the U.S. charges 2.5 per cent.
“The only really severe tax we have is the Chicken Tax, a 25-per-cent U.S. tariff on light trucks,” Murphy said. “It goes back to a trade war in the 1960s and it’s the reason you don’t see pickup trucks here that are made in Japan or Germany.”
Under current NAFTA rules – which the U.S. has been pushing to change – if 62.5 per cent of a passenger vehicle is made in Mexico, the U.S. or Canada, it can travel between all three countries without those tariffs.
If the U.S. goes ahead with a 25-per-cent tariff, that would apply to cars built in Canada and sent to the U.S. by Honda, Toyota, Ford, GM and Fiat Chrysler.
“We produced 2.3 million vehicles last year and about 85 per cent of them were exported to the U.S.,” said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.
There are a lot of unknowns. Would the tariffs apply to other countries, like Germany, Japan and Korea? Would they include used cars? Would they be applied each time a car crosses the border during manufacturing?
It’s also not clear whether Canada would retaliate with its own tariff on cars coming in from the U.S.
Could prices rise?
An estimated 7 million cars were imported into the U.S. last year from all countries, including Canada, DesRosiers said.
“A 25-per-cent duty would amount to between $5,000 and as much as $15,000 per vehicle and average about $6,000 to $7,000 per vehicle,” DesRosiers said. “A duty of this size would pretty well kill most [U.S.] sales of these imported vehicles.”
With so much unknown, it’s tough to predict what that would mean for prices here.
DesRosiers thinks Canada and other countries would “surely retaliate” against the auto tariff, but probably not by putting tariffs on American-made vehicles.
“Agriculture products from the U.S. would be a more likely target,” DesRosiers said. “So Canadian automotive consumers would have little negative impact, although higher prices would also flow through to Canada and cause some disruption.”
If you’re shopping for used cars, a Trump tariff on used cars crossing the border could mean lower prices, Canadian Black Book’s Murphy said.
Since 2015, up to 300,000 Canadian used cars have been exported to the U.S. The lower Canadian dollar has made them cheaper than used cars there.
“For the last few years, all these used vehicles – especially full-sized tricks and larger SUVs – have been flowing to the U.S.,” he said. “If Mr. Trump imposes severe tariffs, that would stop and prices would fall dramatically.”
A drop in used car prices could also mean higher leases – because the cars would be worth less at the end of their lease.
But until any tariff is actually announced, prices shouldn’t change.
So, if you’re looking for a car, “I don’t think there is a particular reason to rush,” Murphy said.
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