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U.S. automakers warn tariff would stall industry

The higher cost of domestic steel already is saddling car manufacturers with “hundreds of millions of dollars in new, unplanned cost.”

   U.S. automakers and their myriad suppliers and dealers warned lawmakers on Capitol Hill Wednesday that their industry will stall if the Trump administration decides to implement a 25 percent tariff on auto and parts imports.
   The auto manufacturing industry across the country has poured billions of dollars into plants, research and development and labor in recent years. 
   Rick Schostek, executive vice president for Honda North America, who testified before the Senate Finance Committee, explained there’s “healthy competition” among the 14 companies building autos in the United States. “This industry is not in need of protective tariffs,” he said.
   Honda North America, which also manufactures jet engines, generators, ATVs and lawnmowers in the U.S., currently employs an auto-related workforce of 31,000 Americans, with 72 percent of those working on the factory floor. In 2017, the company purchased more than $41 billion in auto parts, supplies and services from over 12,000 U.S. companies alone. It exports its U.S.-made products to 89 countries.
   The Commerce Department in May began an investigation into the national security impacts of global automobile imports under Section 232 of the 1962 Trade Expansion Act, the same kind of investigation that led the president to impose global tariffs of 25 percent on steel and 10 percent on aluminum on March 23.
   At the same time that prices on U.S. imports of steel and aluminum have increased with the tariffs, American steel producers have raised their prices. Since the Section 232 tariffs took effect, prices on hot-rolled steel, for example, have increased from $600 per ton to $900 per ton today.
   Honda North America sources 90 percent of the steel for its autos from U.S. sources. “So, while we’re paying relatively little in the way of tariffs on steel, the price of domestic steel has increased as a result of the tariff, saddling us with hundreds of millions of dollars in new, unplanned cost,” Schostek said.
   He said the response to these tariffs among the U.S. automakers is to “divert resources” from investments in next-generation vehicles and plant upgrades. “These are very complex supply chains,” he told the Senate committee.
   Similarly, auto parts manufacturers are starting to throttle back on their investments. “A lot of progress has been made in the industry. Now we’re sitting back waiting to find out if we’ll be disadvantaged,” said Michael Haughey, president and CEO of North American Stamping Group, based in Portland, Tenn.
   If the Section 232 tariffs are imposed by the Trump administration, consumers should anticipate price increases for new cars and trucks. Various studies indicate that the increase in prices for model years 2019 and 2020 could range from $1,400 to $7,000 per vehicle.
   “Cars are very price sensitive,” said Steve Gates, dealer principal for the Gates Auto Family dealership in Richmond, Ky. “Everyone who buys a car cares about the payment.”
   An increase of $6,000 to the price for a new vehicle could add as much as $120 to a customer’s average monthly payment, Gates said. If consumers react by shifting to the used car market, those prices also will rise, as will as general maintenance and repair costs. He warned that people will then have the tendency to put off maintenance, resulting in more unsafe vehicles on the road.
   The Driving American Jobs Coalition, which consists of eight auto industry trade associations, recently stated that a 25 percent tariff on imported autos and related parts would cause a loss of more than 700,000 American jobs; a $60 billion decline in U.S. gross domestic product; a nearly $7,000 increase in average vehicle prices; a 2 million vehicle decline in annual sales; and as much as a 10 percent increase in the cost of repairs and replacement parts.
   “Countries don’t pay the tariffs. Consumers pay the tariffs,” said H. David Britt, chairman of economic development for the Spartanburg County Council of South Carolina. The county is home to BMW’s large American vehicle production facility. “We have never won a tariff war in the United States.”

Chris Gillis

Located in the Washington, D.C. area, Chris Gillis primarily reports on regulatory and legislative topics that impact cross-border trade. He joined American Shipper in 1994, shortly after graduating from Mount St. Mary’s College in Emmitsburg, Md., with a degree in international business and economics.