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United States

Trump tariffs may cost US auto industry 1 million car sales a year

If companies pass the full 25 per cent cost on to consumers, it could potentially snuff out about 2 million sales, or more than 10 per cent of annual US deliveries

PUBLISHED : Wednesday, 13 June, 2018, 12:23am
UPDATED : Wednesday, 13 June, 2018, 2:29am

If US President Donald Trump imposes a 25 per cent tariff on imported vehicles, it may cost the US auto industry 1 million annual vehicle sales – and that is just the low end of the estimated damage.

The projection by researcher LMC Automotive assumes carmakers would absorb at least half the cost of a tax on imported vehicles, said Jeff Schuster, senior vice-president of forecasting.

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If companies pass the full 25 per cent cost on to consumers, it could snuff out about 2 million sales, or more than 10 per cent of annual US deliveries, he said.

Trump’s order last month to investigate auto imports for potential trade penalties on national security grounds came as a surprise and quickly drew criticism from carmakers, auto dealers and Republican lawmakers.

While some analysts discounted it as a negotiating tactic to pressure Canada, Mexico and the European Union on trade, Trump has since attacked Canadian Prime Minister Justin Trudeau following the G-7 summit in Quebec.

Trump’s statements may merely be “chest thumping”, Schuster said.

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But after the US imposed tariffs on imports of steel and aluminium from countries including Canada and Mexico, the threat of new levies must be taken seriously. “The escalation is starting to happen,” he said.

General Motors is watching trade negotiations closely and providing input, Chief Executive Officer Mary Barra told reporters Tuesday ahead of the automaker’s annual meeting.

She did not directly answer when asked how a 25 per cent imported vehicle tariff would impact the company.

“We want to make sure that we maintain affordability in vehicles because that’s so important – to continue to support the market that’s strong, that is supporting a lot of jobs,” Barra said in Detroit. LMC estimates that GM will sell 1.16 million imported vehicles in the US this year, about 39 per cent of the company’s total deliveries.

If Trump follows through with the 25 per cent tariff, Schuster said US consumers would likely react in three ways. Some would look to the used car market, especially lightly used cars coming off lease.

Others would shift to domestically produced vehicles with cheaper price tags. And a third group might just postpone buying a new car, under the assumption that the tariffs are the result of a temporary political spat.

Trump ordered the investigation into auto imports under Section 232 of the Trade Expansion Act of 1962, the same power he used to impose global tariffs on imported steel and aluminium.

While US metal producers have been ravaged by global overproduction and depressed prices, the car market is much healthier.

Sales have been slipping from a record of almost 17.6 million units in 2016, but LMC predicts a still-strong 17.1 million deliveries this year, and vehicles sold at record average prices approaching US$33,000 last month.

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