Trump auto tariffs may cost hundreds of thousands of U.S. jobs

By DonShook

President Donald Trump’s threat to slap heavy tariffs on imported cars and partsmay cost hundreds of thousands of American jobs and raise auto prices in the U.S. by roughly 10 percent. That’s according to analyses from economists, industry groups, lawmakers and carmakers ahead of a June 29 deadline to submit comments to the U.S. Commerce Department.

Indeed, General Motors Co. warned on Friday that the tariffs being considered by the Trump administration could lead to a “a smaller GM” and risks isolating U.S. businesses from the global market, Reuters reported. The largest U.S. automaker, with around 180,000 employees, said in its comments to the Commerce Department that the tariffs could “lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less — not more  — U.S. jobs.”

In May, the Trump administration floated a 25 percent tariff on auto imports, framing the national security measure to ensure the vitality of key U.S. industries. Last week, Mr. Trump proposed a 20 percent tariff on all auto imports from Europe, before he gets the results of an investigation initiated last month by his own Commerce Department.

Here are the latest estimates on both job losses and costs:

A 20 percent tariff on EU auto imports may cost 100,000 U.S. jobs in 2019 alone, economists at Oxford Economics forecast in a June 28 note.

Because the tariffs would inject “uncertainty” into the U.S. economy, the “total shock” could be twice as large, the analysts wrote. It would also be felt quickly. Mostly luxury brands would be hit, such as Audi, BMW and Mercedes, “but higher import prices for parts could affect the pricing of mid-range vehicles produced in the U.S. like Volkswagen,” the analysts wrote.

Total American job losses climb to 195,000 over three years if 25 percent tariffs are applied broadly, a recent analysis from the Peterson Institute for International Economics found. If other countries retaliate and tax similar products, a whopping 624,000 jobs may be erased in the U.S., PIIE estimated.

Slowing demand for cars imported to the U.S. would likely result in even more lost jobs. And that demand is bound to slow, the analysis found. That’s because the industry and its suppliers are so intertwined. More than $200 billion in U.S. imports could be affected. The PIIE calculation assumes no countries would be exempted from the 25 percent tariffs, including North American Free Trade Agreement partners Canada and Mexico.

“Both scenarios demonstrate how reliant the domestic industries are on imported parts, or intermediate inputs” that aren’t U.S. made or that “have no easy substitute,” the PIIE analysis said. “Tariffs would raise the cost of these parts and domestic production, which makes products more expensive to consumers and lowers demand” home and abroad.

Consumers may see an average price increase of $5,800 from a 25 percent import tariff, according to estimates cited by the Alliance of Automobile Manufacturers (AAM), a lobbying group for carmakers. That’s a “$45 billion tax on consumers,” the group said, citing an analysis of Commerce Department data.

Automakers, foreign and domestic, build vehicles in 45 facilities in 14 states, supporting more than 7 million U.S. jobs, according to the statement the AAM filed with the Commerce Department.

A Toyota Camry made in Georgetown, Kentucky, for instance, will cost consumers an additional $1,800 if the tariffs are enacted, the Japanese carmaker predicted in a statement ahead of submitting its comments to the Commerce Department. Toyota says it operates 10 plants in the U.S.

“We believe the only plausible outcome of this investigation is to reject the notion that automotive imports threaten national security,” Toyota said.

Higher prices for imported cars would give domestic carmakers “some leeway” to raise their own prices, the Oxford analysts noted. That might lead to more inflation. And it would be felt quickly: Dealers currently hold only about 60 days of inventory, Oxford said, citing LMC Automotive.

The American International Automobile Dealers Association predicts consumers would pay an average of $6,400 “extra” on a $30,000 vehicle, according to comments it filed with the Commerce Department on June 28.

“Autos and auto parts aren’t a national security threat, but tariffs are a real and dangerous threat to our economy,” AIADA President and CEO Cody Lusk said in a statement. Dealers and their employees “strongly support a pro-growth economic agenda, and believe it can be accomplished with a positive trade message, not the threat of tariffs and taxes.”

The U.S. has 9,600 international nameplate auto franchisees that employ 577,000 with a $32 billion payroll, according to the AIADA. In 2017, they sold 9.6 million vehicles, or 56 percent of total U.S. retail vehicle sales.

Some parts-makers see the tariffs as a “final step to economic disaster” after steel and aluminum tariffs, Linda Hasenfratz, CEO of Canadian supplier Linamar, told Bloomberg in a July 27 interview.

“Prices will have to be dramatically increased to consumers, consumers will stop buying and we will have a collapse in the automotive market” to a greater degree than the financial crisis a decade ago, Hasenfratz said. Linamar has plants in 11 countries including the U.S. and Mexico.

She predicted “wide-scale” layoffs, falling demand and a spin into a “deep, deep recession” in the U.S. that drags other countries with it.

Almost 1 million U.S. jobs are tied directly to auto and parts manufacturing, according to the Bureau of Labor Statistics. Another 2 million are linked directly to vehicle and parts dealers. And cutbacks by automakers could hit family-run dealerships hard. The average dealership has 69 employees, according to the 2017 National Automobile Dealers Association’s annual profile posted on its website.

Japanese carmakers accounted for 92,000 jobs in the U.S., according to the Japanese Auto Manufacturers Association’s annual report. Dealer networks provide more than 350,000 jobs.

German carmakers employ more than 36,000 workers in the U.S. Another 80,000 work for American suppliers, according to German auto industry group VDA.