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The tariffs recently implemented by the Trump Administration already are having some effects. But one that hasn’t shown up yet — but possibly will — is an increase in car prices for U.S. consumers.
President Trump already has used the Twitter Inc (NYSE:TWTR) platform to call for a 20% tariff on imported cars. Whether those tariffs are permitted as a response to a “national security threat” remains to be seen, with the administration currently investigating that matter. Already instituted steel and aluminum levies will have a more modest impact as well.
And so it’s worth considering what those tariffs might mean for car buyers — and investors. Right now, the news seems relatively negative, at least if the industry itself is to be believed.
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The Effect of Tariffs on Car Prices
The problem with imposing tariffs on automobiles — and automobile parts — is that the industry’s supply chain is truly global. Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) assemble and produce cars in Mexico and source parts from markets all over Asia and Europe. Meanwhile, many foreign automakers have plants in the United States, notably Toyota Motor Corp (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC).
Hence, the idea that tariffs will only hit foreign companies is probably too simplistic. Indeed, the industry’s trade group — which includes Ford and GM — already has come out against the tariffs. Toyota has said that its Camry, which is manufactured in Kentucky, would see a price increase of $1,800. Other estimates have suggested average car prices could climb by over $5,000 per unit.
Estimating the precise impact is difficult at the moment because, admittedly, the situation remains in flux. As I’ve pointed out elsewhere, negotiations could wind up averting a trade war. It’s likely — but not certain — that other countries would retaliate if US tariffs were imposed. GOP Senators are trying to create the power to essentially veto any tariffs that come from the White House.
But even steel and aluminum tariffs alone should have an impact. One estimate suggested a more modest, but still notable, effect of about $300 per car.
Of course, this shouldn’t necessarily be news. Tariff-sourcing from lower-labor-cost overseas markets generally benefits U.S. consumers — and hits U.S. manufacturers. The reversal of that policy should lead to a reversal of the outcome. The concern at the moment, however, is that, because the supply chain is so global, U.S. consumers will feel the pain — and U.S. manufacturers won’t see the benefit.