Trump Administration Tariffs Could Boost Car Prices, Limit Choices

© Associated Press - Car and Driver   The administration has proposed tariffs of up to 25 percent on all vehicle imports; the China-built Buick Envision could see a penalty of more than $8000. Read more at Car and Driver.

By David Muller, Car and Driver

The Trump administration’s recently announced 25 percent tariff on myriad China-made goods-including vehicles-would add a levy of approximately $8250 to the price of a Buick Envision crossover. That’s 25 percent of the 2019 model’s $32,990 starting price. Whether that increase is reflected in full on the sticker price come July 6, when the tariffs are set to take effect, is totally up to General Motors. The automaker would not provide detail on any potential financial impact of the tariff; a spokesperson said the company is assessing the situation.

The Chinese tariffs could still be adjusted before July 6. But as it stands, the United States Trade Representative (USTR) is set to put the 25 percent duty on $50 billion worth of goods made in China, affecting industries ranging from aerospace to industrial materials but excluding more commonly bought consumer goods such as televisions and cellular phones. President Donald Trump has also threatened to pursue another $200 billion in tariffs on Chinese goods.

© Associated Press - Car and Driver   Trump Administration Tariffs Could Boost Car Prices, Limit Choices

While China-sourced vehicles of all kinds are affected by the $50 billion in levies announced Friday, there remain few passenger vehicles sent from that market to the United States. The Envision is a primary example, but it isn’t one GM’s higher-volume vehicles. The automaker delivered 41,040 Envisions in the U.S. last year, compared with 290,458 units of the mechanically similar Chevrolet Equinox and 123,506 units of the larger Chevrolet Traverse. GM is building the Envision in China primarily for sale in China; it sold 210,000 Envisions there last year. (Such a tariff would hit slow-selling, China-built models such as the Cadillac CT6 plug-in hybrid and the long-wheelbase Volvo S60 Inscription-which start at $76,090 and $37,945-even harder.

Ford plans to build its next-generation Focus in China, and so far plans call for the eventual import of at least the Ford Focus Active to the States. In an emailed statement to Car and Driver, Ford said there has been no change to production and sourcing plans but also noted that it has yet to import any cars from China. “So, in the near term, we continue to urge both governments to work together through negotiation to resolve issues between these two important economies,” a company spokesperson said.

Tariffs May Expand beyond China

But the auto tariffs may not be limited to vehicles made in China. The Trump administration has threatened to put tariffs of up to 25 percent on all imported passenger vehicles, and, at Trump’s direction, last month the Commerce Department announced a Section 232 investigation into automobile imports. The department set a public hearing for July 19 and 20. A Section 232 investigation is an obscure measure unused for more than three decades that was brought out of mothballs as part of the Trump administration’s defense of its import tariffs of 10 percent on aluminum and 25 percent on steel.

On Wednesday, Commerce Secretary Wilbur Ross defended that move to Republican and Democratic senators, with lawmakers of both parties inquiring why the federal government is using national-security grounds to implement duties on imports on allied countries such as Canada, with which the United States has a trade surplus. Ross told the Senate Committee on Finance that the blanket tariffs were due to China shipping steel and aluminum through other countries, disguising origins.

Several senators also asked about the investigation into automobiles, which seems to be following the same pathway as the steel and aluminum tariffs. Republican Senator Orrin Hatch of Utah, who chairs the committee, began the hearing by noting that the auto investigation covers $200 billion worth of trade, which is four times larger than the scope of the steel and aluminum investigations combined.

© AP Photo/Jacquelyn Martin - Car and Driver   Trump Administration Tariffs Could Boost Car Prices, Limit Choices

He also noted that for many American families, a car is the second largest purchase and is often depended upon for employment. “The average price of an imported car is $23,200,” Hatch said. “If the Department of Commerce were to recommend a 25 percent tariff on cars, it would be recommending raising the cost of an average imported car for an American family by $5800.” He added that, with the median household income in the U.S. at just over $59,000, roughly 10 percent of the average American family’s annual income would be wiped out by the new cost were they to purchase an imported vehicle.

During the hearing, which focused mostly on steel and aluminum, Ross offered few details on the automotive investigation, noting that it “is just now beginning.” The main concern, he said, is that starting in about 1985 the U.S. had a small trade deficit in autos but now has a “quite huge one, pushing $140 billion a year.” He said there’s a similar deficit in auto parts.

Reduced Choices a Real Possibility

Most imported passenger vehicles currently have tariffs of 2.5 percent, with the exception of light trucks, which carry a 25 percent duty thanks to the 54-year-old so-called “Chicken Tax.” Proponents of higher tariffs on imported vehicles say it will increase domestic production and result in more American jobs. Yet if auto manufacturers were forced to shift production to domestic locations because of higher duties, they would likely do so only for high-volume vehicles, said Bernard Swiecki, assistant director for the industry, labor, and economics group at the Center for Automotive Research. He said automakers would either charge more for low-volume vehicles or simply stop importing them into the United States. “Unless (the vehicles are) very high volume, automakers will substantially increase the price or just stop selling the vehicle here,” Swiecki said. “So the consumer will have higher prices and reduced choice.”

In the case of the Buick Envision, adding the full cost of the tariff to the vehicle is but one approach GM could take, Swiecki said. The automaker could swallow the entire cost, although that’s not likely. There is also the possibility of distributing the cost across several vehicle lineups and nameplates, while reducing incentives. In the end, consumers are likely to foot the bill for at least part of any new tariffs.