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Border tax could raise car prices for U.S. consumers by $2,000

Amid uncertainty about U.S. changes, Ford Motor Co. cancelled plans for a new assembly plant in Mexico.

Carla Gottgens/Bloomberg

The Trump administration has a reason to think twice before slapping a border adjustment tax on automobiles – such a levy could raise prices for U.S. consumers by an average of about $2,000 (U.S.) a vehicle.

That's an estimate made by the Center for Automotive Research (CAR) in Ann Arbor, Mich., an industry think tank that has examined U.S. Speaker of the House Paul Ryan's proposal for a 20-per-cent border tax.

Based on U.S. sales of about 17.5 million vehicles last year, such a tax would add $1,970 on average and cost consumers $34.6-billion, said Kristin Dziczek, CAR's research director.

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The average U.S. vehicle price was about $34,000 (U.S.) last year.

"The logical thing to do as a business if you're going to be taxed on your imports is to make sure you do as much of you can in this country which is the overall aim of what [the administration] is trying to do," Ms. Dziczek said Monday from Ann Arbor.

The potential border tax, tariffs on vehicles imported from Mexico and other changes to the North American free-trade agreement are under discussion as the new government tries to stick to campaign promises to create more jobs in the United States, cut taxes and build a wall to stop illegal immigration from Mexico.

Amid deep uncertainty about what changes will occur, auto makers have announced new U.S. investments, made loud public pronouncements about the number of jobs they have created and, in the case of Ford Motor Co., cancelled plans for a new assembly plant in Mexico.

The proposed border tax would have different effects on different auto makers and their customers, Ms. Dziczek said.

"Some auto makers are going to have very little price increase at all," she said. "They export a lot, import not as much and may see price increases of a couple of hundred dollars. Some import brands may have to effect a price increase of over 20 per cent."

Auto makers that don't manufacture vehicles in the United States but import what they sell face the biggest potential hit, although CAR has not broken out the impact by manufacturer.

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Among the companies that import all U.S.-sold vehicles are Mazda Motor Corp. and Jaguar Land Rover.

Ms. Dziczek noted that price increases would have less of an impact on luxury buyers than they would on buyers of small vehicles.

Buyers of small or entry-level vehicles might face price increases that would cause them to buy mid-sized vehicles that have more domestic U.S. content, or they might decide to buy used vehicles or they might keep the vehicle they already own.

Economists meanwhile, are already raising the spectre of an inflationary jolt caused by the Trump administration's policies.

While a border tax would be aimed mainly at Mexico, it could have an effect on Canadian vehicle production. Among the three NAFTA countries, auto makers produce just 12 per cent of the vehicles they sell in Canada at their Canadian plants, compared with a 19-per-cent figure for Mexico and 78 per cent for the United States.

The potential impact on the industry and consumers is further complicated by actions countries might take if their exporters suddenly face a substantial U.S. border tax.

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Challenges to the World Trade Organization would be all but certain.

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