Over the last few months, the U.S. and China have been involved in a tariff tag-of-war, which China responding to every threat launched by president Trump on imports from the Asian country to U.S. soil. However, this trade war appeared to take another twist in May 2018 when Trump announced that auto imports from the European Union would be subject to a 20% tariff.
This resulted in an escalation of trade wars that over the last few months swung the capital markets up and down as investors reacted to every bit of news emanating from the regions involved.
The question that most people have been asking though is, what would be the impact on the auto industry if the 20% tariffs on EU imported autos to the U.S. were to be implemented? Well, one thing for sure is that that is an additional cost on every vehicle that an American import into the country from the EU. The good news is that European cars are ranked under the class of the luxurious vehicle, which means that buyers of such cars may not worry much about the additional costs that arise due to the 20% tariffs.
However, when you try to factor this cost in on a vehicle that costs $50,000 and above using a simple car payment calculator that’s at least $10,000 more on top of the purchase price. For instance, if a full 20% tariff against EU imports was implemented and passed on to American consumers, the starting price of a 2018 Mercedes SL Roadster would increase by $17,640 to $105,840 from its current price of about $88,200.
Furthermore, experts suggest that this could also result in a significant increase in the prices of lower-priced cars. An artificial increment in the price of premium cars makes them relatively uncompetitive in the market and this provides sellers of mid-level to low-level cars to inflate their prices.
In a statement released by the Alliance of Automobile Manufacturers last month following the announcement of potential tariffs on autos imported from the EU, the body said that “tariffs will lead to increased producer costs, increased produced costs will lead to increased vehicle costs, increased vehicle costs will lead to fewer sales and fewer tax receipts, fewer sales will lead to fewer jobs, and those fewer jobs will significantly impact many communities and families across the country,” according to an article published by CNBC.
Trump’s announcement of a potential tariff on EU autos imports into the country came after the European Union imposed a 25% duty on $3.2 billion worth of imported American goods.
Earlier in the year, Trump had unveiled a plan to impose 25% for steel imports and 10% for aluminum. While signing the order, he said that the move was related to new security protocols, “citing a recent Commerce Department report that determined too much cheap metal has flooded the market and threatens to ruin the American industrial base,” according to DMV.
In 2017, the U.S. imported 27 million metric tons of steel, which reaffirmed its position as the world’s leading importer while the 7 million metric tons of aluminum imported during the same period accounted for about 90% of America’s consumption of the metal.
Analysts suggest that imposing the 25% and 10% tariffs on steel and aluminum respectively could provide local manufacturers of such products with a competitive edge against their foreign rivals, but there is real worry that if these costs are passed on to domestic consumers then there could be a flipside to the positives gained.
China, which is a prominent importer of U.S.-made cars and because of increased costs, it has suffered from increased auto tariffs and in response announced similar tariffs on some of the products the Chinese import from the U.S.
Conclusion
While the U.S., China, and the EU continue to engage in what appears to be a series of unending blow-for-blow trade wars, the net impact is likely to adversely affect the purchasing power of the consumer, and as discussed in this article, clearly, the auto industry is one of the areas that consumers will be looking at when making their car purchase decisions.
