Beyond the Hysteria about Auto Tariffmageddon, by Wolf Richter

It’s not easy trying to figure out which car companies will benefit and which will be penalized by proposed tariffs. The car business is complicated. From Wolf Richter at wolfstreet.com:

After decades of relentless offshoring, the equation may change for automakers and component makers.

President Trump’s threat to impose tariffs of 20% or 25% on auto components and vehicles imported to the US is causing a bout of hysteria that is splattered all over the media.

The auto industry lobbying group, Alliance of Automobile Manufacturers, is now claiming that a 25% tariff on imported vehicles and components would cost US consumers $45 billion a year, or $5,800 per vehicle. “This would largely cancel out the benefits of the tax cuts,” it says.

I have serious doubts about those numbers, and “propaganda” comes to mind. But even it they’re correct theoretically, the calculation assumes that the industry would not react to those tariffs except by passing them on to consumers. Consumers are unlikely to go for that program, and automakers will end up restructuring their supply chains and manufacturing to bring some production back to the US, after having spent decades on offshoring production.

That’s one purpose of tariffs. Another purpose is to persuade other countries to lower their own tariffs. It has been an uneven playing field for decades, stacked against US workers.

The EU imposes a 10% tariff on all cars, SUVs, compact SUVs, vans, and pickups imported from the US. The US imposes a 2.5% tariff on imported passenger cars, SUVs, compact SUVs, and vans from the EU and a 25% tariff on imported pickups (a tiny segment of the EU market).

China imposes a 25% tariff on all imported vehicles but offered to cut this to 15% as a goodwill gesture in the trade war. To get around the Chinese tariffs and sell vehicles to the 1.3 billion Chinese consumers, all global automakers have invested billions of dollars in China, have set up large manufacturing facilities in required joint ventures with often state-controlled Chinese companies, and have submitted to the required technology transfers. GM now makes and sells more vehicles in China than it does in the US.

To continue reading: Beyond the Hysteria about Auto Tariffmageddon

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