Drewry’s white paper predicts, if the tariffs are imposed, a rush of U.S. imports of finished vehicles and auto parts in 2019 before declines in 2020 and 2021.
Proposed U.S. auto tariffs would have a negative impact on east-west trade routes as American imports of finished vehicles and auto parts would likely decrease in 2020 and 2021, according to a white paper published last week by Drewry.
The Commerce Department on Feb. 17 submitted to the White House its Section 232 on automotive imports, and President Donald Trump has 90 days from that date to impose the tariffs. He has said such tariffs could reach as high as 25 percent.
“According to some estimates by the Center for Automotive Research (Michigan), the imposition of tariffs on finished vehicles and auto parts as high as 25 percent would induce a loss of 366,900 jobs in the car sector, price increases of $2,750 on average per vehicle (including U.S.-built vehicles) and finished vehicle sales losses of 1.3 million units, which is approximately 8 percent of the total sales registered in 2018,” said Drewry in its analysis, which tested tariffs of 5 percent, 15 percent and 25 percent, with the extra cost going toward customers in the fourth quarter of 2019.
Overall, U.S. imports of finished vehicles and auto parts could rise in 2019 due to a rush of imports to escape the tariffs, Drewry said.
But the low-intensity scenario predicted 2 percent and 3 percent drops of seaborne imports of finished vehicles in 2020 and 2021 and 6.4 percent and 2.4 percent in auto parts during the same years. The high-intensity scenario forecast more drastic decreases of 10 percent and 14 percent for finished vehicles and 14 percent and 11 percent for auto parts.
Japan and China would be the two countries most affected in the eastbound transpacific trade route and Germany would be the most affected in the westbound transatlantic route, according to Drewry. Japan holds 67 percent of eastbound finished vehicle imports trade and China holds 61 percent of auto parts trade. Germany holds 78 percent of westbound auto parts and 63 percent of westbound finished vehicles imports trade.
NYK, K-Line and MOL would be the most affected operators on the eastbound transpacific route, while European operators WWL and Hoegh would be most impacted on the westbound transatlantic route, according to the analysis.
“Any imposition of U.S. tariffs on European cars and auto parts would represent a significant escalation of transatlantic tensions between the U.S. and the EU and given the importance of these commodities could lead to a serious escalation,” said Martin Dixon, Drewry’s director of research. “Such a situation would have an even more severe impact on trade flows on transatlantic trade routes, with ominous consequences for a global maritime industry already grappling with overcapacity, rising operating costs and new regulatory compliance.”
Transatlantic trade of finished vehicles is forecast to fall by 3 percent and 4 percent in 2020 and 2021 under the low-intensity tariffs and by 11 percent and 15 percent if 25 percent tariffs are imposed. Auto parts are expected to grow in 2019 under both the 5 percent and 25 percent scenarios, with the growth slowing to 1 percent and 2 percent in 2020 and 2021 in the low-intensity scenario. Under the high-intensity tariffs, transatlantic imports of auto parts would fall 8 percent and 7 percent in 2020 and 2021, respectively.
U.S. seaborne imports of finished vehicles from the transpacific route are expected to fall by 4 percent in both 2020 and 2021. Car parts are forecast to decrease by 6 percent and 3 percent in those years under the 5 percent tariffs. The 25 percent tariffs are predicted to reduce finished vehicle imports by 11 percent and 16 percent in those years and decrease auto part imports from Asia by 15 percent and 11 percent.
The ports of Baltimore, Los Angeles and Long Beach and New York and New Jersey would be the most exposed to effects of U.S. auto tariffs. Baltimore held a market share of 12 percent of handling U.S. maritime imports of finished vehicles in 2018 and the Port of New York and New Jersey had an 11 percent market share. The Port of Los Angeles and Long Beach handled 42 percent of containerized imports of auto parts, more than quadrupling New York and New Jersey, which had the second-highest market share of 10 percent.
The proposed tariffs could benefit Mexico and Canada, Drewry said.
“Even though the approval of USMCA faces some significant hurdles in both chambers of U.S. Congress, factors such as the current NAFTA trade agreement in place, the logistics and the proximity to the U.S. market could potentially boost Mexican and Canadian exports to the U.S., which are mostly transported via surface mode,” the analysis reads. “In 2018, total U.S. imports of Mexican goods rose 10 percent in dollar value, the most in seven years, amid the trade war between the U.S. and China.”