"The overbroad and steep application of import tariffs on our trading partners risks isolating U.S. businesses like GM from the global market that helps to preserve and grow our strength here at home," GM said.
In a recent study, the Peterson Institute for International Economics said if tariffs of 25 percent were placed on all imports of vehicles and auto parts, production in the U.S. would fall 1.5 percent and 195,000 U.S. workers could lose their jobs over the course of several years. The analysis assumed there were no countries exempted and the tariffs were also put on NAFTA partners. It said the trade action could affect about $200 billion of U.S. imports, not including the parts industry.
If other countries retaliated with similar tariffs, production could fall 4 percent and 624,000 jobs could be lost, Peterson said. Prices would rise for both imported and U.S.-produced vehicles, and companies would have to decide how much of the increased costs to pass on.
More than half of the vehicles purchased in the U.S. are manufactured domestically, with another 24 percent or so from Canada and Mexico. European imports make up 6.7 percent of the U.S. total.
Diane Swonk, Grant Thornton chief economist, said the auto sector is the one industry that is so linked in the global supply chain that a trade war in autos could hit profitability, impact workers and ultimately the economy. Already, the industry is taking pre-emptive actions.
“Automakers are hoarding and building inventories in key ports from key countries ahead of tariffs. This has an impact too,” she noted, adding there could be a surge in imports and inventories followed by a bust.
According to Reuters, port officials in Jacksonville, Florida; Brunswick, Georgia, and Baltimore reported importing a combined 23,000 more cars in May than the same time last year, and exports rose sharply, with 39 percent more cars leaving Baltimore and 19 percent more exiting from Jacksonville. In Long Beach, California, vehicle imports were up 3.4 percent in May while exports were down 24 percent. Automakers using that port include Daimler and Toyota.
“Autos are so important because they’re important in every country, and there is no such thing as a country border when you determine the content of an auto,” said Swonk. She said restrictions on the auto sector don’t work and aren’t good for consumers, as was evidenced when the U.S. put quotas on Japanese vehicles in the 1980s. “The reality is the world has changed a lot from the 1980s. The Japanese quotas were costing U.S. consumers over $3,000 per vehicle,” said Swonk.
The supply chain is so intertwined that U.S. auto production suffered from a parts shortage when the 2011 earthquake and tsunami in Japan hurt the ability of parts makers to manufacture and export.
“We don’t export and import. The cars we produce when we sell them are made from parts from all over the world,” she said. “Most things are not made 100 percent U.S. unless it’s 3-D printed here.”
Ethan Harris, Bank of America Merrill Lynch global economist, sees the next likely step in the trade battles as a bigger round of tariffs on Chinese goods, $100 billion or $200 billion. But then the auto sector may be targeted by the Trump administration.
“Auto tariffs would represent a major step down the road to a full-blown trade war and if sustained could slice a few tenths or more off of global growth. Going the final step to across-the-board tariffs between the US and its trading partners would very likely cause a global recession. However, we still see that as a low-probability outcome,” Harris wrote in a note.
He said the next round of Chinese tariffs would already cause a bit more pain, since it would end up targeting more consumer goods, possibly wiping out the positives from the tax cuts.
“It's one thing to move steadily forward with tariffs when there are few visible costs. As tariffs continue to escalate, however, the signs of pain should become quite obvious to all parties. Spikes in consumer product prices like we have seen in washing machines would become frequent and front-page news. Export firms would start to lay people off. Consumer, business and market confidence would drop sharply. Public opinion would likely turn against the tariffs: "war" seems great when soldiers are marching to the front, but not so great when the casualties come home,” he wrote.