Trump tariffs could add $5,000 to price of new vehicle in US

President Donald Trump talks with auto industry leaders, including General Motors CEO Mary Barra (L) and United Auto Workers (UAW) President Dennis Williams (R) at the American Center for Mobility in Ypsilanti Township, Michigan, U.S. March 15, 2017.
Jonathan Ernst | Reuters
President Donald Trump talks with auto industry leaders, including General Motors CEO Mary Barra (L) and United Auto Workers (UAW) President Dennis Williams (R) at the American Center for Mobility in Ypsilanti Township, Michigan, U.S. March 15, 2017.

Prices of new cars and trucks could jump by several thousand dollars in the U.S. if President Donald Trump follows through on his threat to raise tariffs on imports.

The same likely would hold true even if a particular car is made in the U.S. because analysts believe automakers would spread the cost of tariffs among many different vehicles to avoid putting at a disadvantage any of their models made in foreign markets.

Automakers, including U.S. companies, are trembling at the prospect of increased tariffs on imported vehicles, which could range up to 25 percent based on the president's threats.

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"If you put that kind of a tariff on a vehicle or an industry, prices are definitely going to go up on average," said Jeff Schuster, senior vice president of forecasting at LMC Automotive, which tracks vehicle manufacturing. "There’s no way around that."

With current new-vehicle prices averaging about $32,000 after discounts are factored in, a 25 percent tariff likely would increase prices by about $4,000 to $5,000 per vehicle, Schuster said.

That estimate assumes automakers pass about half of the cost along to customers and absorb the rest.

Reduce sales 'significantly'

Those increased prices have "the potential to reduce sales significantly," according to a Cox Automotive analyst report.

"A tariff is a tax and it will be paid by American consumers. It will significantly increase the cost of every new vehicle sold in America, regardless of where it is built," Mazda, which imports 100 percent of its U.S.-sold vehicles, said in a statement.

The Alliance for Automobile Manufacturers, a Washington-based interest group that represents auto companies on policy issues, assailed the potential tariffs as harmful to the American economy. Several individual automakers, including Toyota and General Motors, warned of potential job losses in the industry.

The U.S. has 45 automotive assembly plants, each of which typically employs thousands of workers, in 14 states. If auto sales drop because of higher prices, or auto companies are forced to reduce their work forces because of lower profits, it could undermine those factories.

Some 62 percent of Americans believe the U.S. should consider "the effects that trade agreements would have on American consumers" when negotiating trade deals, according to a March 26-April 1 survey by the Bucknell Institute for Public Policy. Some 69 percent said the U.S. should consider "the overall benefit to the U.S. economy."

Level the playing field

“While we understand that the administration is working to achieve a level playing field, tariffs are not the right approach," the Alliance said. "Tariffs on autos and auto parts raise vehicle prices for all customers, limit consumer choice and invite retaliatory action by our trading partners," it said. "Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade."

Even the Kentucky-assembled Toyota Camry, which Cars.com named the most American-made vehicle in 2016, would face increased costs of $1,800, according to the Japanese automaker.

Still, arguments in favor of tariffs go like this: Europe currently charges a 10 percent tariff on U.S. cars, and the U.S. charges only 2.5 percent on European cars, and that imbalance is not fair. To be sure, the U.S. also tacks on a 25 percent tariff on light trucks from Europe, though most vehicles imported from Europe are German luxury cars such as BMW, Mercedes and Audi. A level playing field might give automakers more incentive to manufacture vehicles in the U.S.

What's more, it's impossible to say conclusively how each company would handle the tariffs. And the tariffs could backfire.

Case in point: Faced with increased tariffs on U.S. motorcycles sold in Europe, Milwaukee-based Harley-Davidson said in June that it would absorb the extra $2,200 cost per bike instead of raising prices. To accommodate the extra costs, the company said it would move some production out of the U.S., potentially eliminating American jobs.

Europe could cave

In 2017, the U.S. imported about 1.26 million vehicles annually from Europe, according to LMC. That represented about 7 percent of U.S. vehicle sales in 2017.

Trump supporters believe the president's threats may cause Europe to cave. And there already are signs that automakers are bending in their previous support for the tariff structure.

Volvo CEO Hakan Samuelsson told USA TODAY in an interview June 20 that he supports a policy of no tariffs on vehicles between the U.S. and Europe or China. Elimination of auto tariffs would be "good for the industry and good for the U.S.," Samuelsson said.

Later in June, BMW CEO Harald Kruger reportedly told a German newspaper that he, too, supports the removal of all tariffs between the Europe and the U.S.

Automakers could also be forced to consider adding more U.S. production to guard against tariffs.

"This could push some manufacturing into the U.S. when they might not have looked at it otherwise," Schuster said.

Net job loss

But given the overall increase in prices expected as a result of tariffs, "net job loss would be expected," he said.

The Alliance, citing data from the Peterson Institute for International Economics, pegged the job loss at 195,000 over one to three years. Automakers and dealers employ about 3 million Americans, according to the Bureau of Labor Statistics.

The Trump administration is considering tariffs under the premise that automotive imports threaten national security.

The Japanese Automobile Manufacturers Association, which represent Japanese automakers that both export and import vehicles to the U.S., rejected that suggestion.

"Imported vehicles increase the options for users’ diversified needs," JAMA said, adding that they have created "new demand in the market, and they have contributed to the sustainable growth of the U.S. automobile industry, including vehicle dealerships, thereby strengthening the U.S. economy."

100% American made?

The only major car company that doesn't import any vehicles to the U.S. is Tesla, whose single plant is located in Fremont, California. But Tesla is expected to build a new factory in China to meet rising demand for its electric vehicles in the coming years.

Among the major automakers, Ford is the leader in the percentage of vehicles assembled in the U.S., according to LMC Automotive.

Ford imports only 21 percent of the vehicles it sells in the U.S. Honda is second at 37 percent, and General Motors is third at 39 percent.

By contrast, German automakers Volkswagen Group, BMW and Daimler import 84 percent, 70 percent and 58 percent, respectively, of the vehicles they sell in the U.S.

But even vehicles assembled in the U.S. have parts made abroad, which reflects the globalization of the auto industry over the last several decades as automakers locate factories and suppliers in foreign markets to reduce costs.

In fact, not a single 2018 model-year vehicle sold in the U.S. gets 100 percent of its parts from the U.S. or Canada, according to the National Highway Traffic Safety Administration.