Disadvantages for Automotive Industry
The automobile industry has long been a consumer of steel and aluminum, with a shift toward aluminum in recent years because of its weight advantage. The increased costs on steel and aluminum imports as a result of this policy change will result in adverse effects for American automobile manufacturers – and their consumers. To put it into perspective, steel accounts for about 60% of the weight of an average automobile, confirming the industry’s heavy reliance on it.
Industry representatives from the American International Automobile Dealers Association responded quickly to express their unease with Trump’s idea. They argue that tariffs could have unintended consequences, especially in the form of higher raw material prices, which would adversely impact the auto sector. Furthermore, it could devastate the availability of jobs in the industry, which employs more than 7 million Americans.
It’s unsurprising that the automobile companies are not happy about tariffs since they introduce a new level of uncertainty. They will make forecasting sales and production costs more difficult, which may have an adverse impact on the bottom line.
Even worse, they argue, one could consider the tariff to be a “tax” that consumers will end up paying. That makes their vehicles more expensive and the domestic auto industry less competitive.
The Controversy Behind Tariffs
Tariffs are always a controversial subject and this time is no different. President Trump is not afraid to shake things up, and there’s little question that his trade proposals are causing a lot of debate, with some pundits claiming the industry faces a job loss of 45,000 by 2019. They also argue that any attempt to protect 145,000 steelworkers at the expense of 6.5 million workers in other industries is dangerous to the economy.
Perhaps even more interesting, President Trump also proposed 20% tariffs on foreign-produced vehicles. Whether this proposal will assuage industry concerns about the steel and aluminum tariffs is as yet unknown. However, it appears the President is serious about his commitment to domestic job production, especially among manufacturers.
Uncertainty is Still High
It’s fair to say that so far none of these matters are close to settling. Several foreign countries have temporary exemptions from the tariffs which they are attempting to make permanent. Essential trade agreements, such as NAFTA, are still in negotiations.
It’s also worth mentioning that the notions of “fair trade” and “free trade” are also generating fierce debate. The open market competition that is in place offers few protections for domestic manufacturing. Traditionally, leadership tends to stay away from entering into this arena because it could become a case of the government choosing sides. Instead of natural market forces determining an eventual winner, regulations impose the will of the government into the equation.
It’s still too early to know how everything will play out for all interested parties, especially with the new proposed tariffs on imported vehicles. Whether those proposals will counter the potentially adverse impact of the steel and aluminum tariffs will require additional research. It’s also possible that President Trump may alter his stance on some or all of his current trade stance. In the meantime, automobile industry executives will have to deal with changes in the sector.