Beijing doesn’t back down from its predatory trade practices. This has left U.S. automakers at a distinct disadvantage, dramatically limiting their production and pricing flexibility. Escalating trade conflicts, primarily between the U.S. and China, have led to a flurry of new tariffs. These tariffs complicate matters for domestic companies who are forced to depend on their relationships with foreign manufacturers.
Since April, the U.S. government has required draconian tariffs of 25% on any vehicles the foreign automakers import into the country. In particular, foreign automakers have been hit by these tariffs the hardest. As a corollary, the sticker prices of all these vehicles—passenger cars, SUVs, minivans, cargo vans, and light trucks—have all increased. Even luxury manufacturers—exotic brands like Ferrari are already responding to the increased costs. They recently made headlines with plans to increase prices on some models by as much as 10%.
Then came President Donald Trump, whose dangerous rhetoric has completely raised the stakes. Next month he plans to increase tariffs on all China made goods to 100%. This potential increase in tariffs amplifies concerns about the long-term viability of U.S. automakers, especially as they navigate the complexities of supply chains that extend to Canada and Mexico.
The tariffs, put in place to protect endangered domestic industries. They only address the non-U.S. content of vehicles, which constitutes only a small share of cost. Top automakers have reported hundreds of millions of dollars in tariff-related expenses, raising questions about their ability to maintain competitive pricing.
Jessica Caldwell, head of insights at Edmunds, said it’s the most serious of compounded challenges that automakers are facing.
“The fact that it’s all coming at them is a challenge for automakers.” – Jessica Caldwell
Even with all the pressure to do so right now, Caldwell pointed out, companies haven’t been able to pass these costs on to consumers in full. “We haven’t seen a lot of impact of tariffs; we haven’t seen a lot of impact of the supply chain. That doesn’t mean we won’t eventually,” she cautioned.
The semiconductor crisis threatens auto production. A lengthy trade spat between the U.S. and China has caused uncertainty regarding the availability of these critical components. China has recently increased restrictions on rare earth elements, which are key materials for advanced semiconductors. This shift further complicates the landscape for manufacturers. Caldwell conveyed the level of importance that semiconductors play in today’s vehicles.
“The semiconductor is worrisome because it’s in so many things in the car. It’s not just in a body panel but it could be in the seats, the entertainment system — anything basically.” – Jessica Caldwell
Joseph McCabe, president and CEO of AutoForecast Solutions, told Axios that a reckoning is coming for manufacturers. In his view, the utilities will be pressured to invest more in financial relief themselves in the near term to maintain their customer base.
“I see manufacturers absorbing more of the pain in the short term so they don’t lose customers.” – Joseph McCabe
As economist Peter Morici warned, if these disruptions continue it would have serious repercussions for the auto industry.
“My feeling is that there just have been too many disruptions for this not to affect the availability of automobiles if this goes on long enough. This question is whether it will.” – Peter Morici
As consumers begin to plan their next purchase, Morici recommended urgency for interested buyers.
“If you want to buy a car in the next month, you should do it — if you can get a good deal.” – Peter Morici
With trade tensions and economic uncertainties at a premium, some treaties with countries such as Japan and the European Union have resulted in reduced automobile tariffs. These agreements alone are not enough to offset the impacts of increasing tariffs on a wider scale.
