Scott Lincicome
Scott Lincicome and Tad DeHaven
President Donald Trump’s decision this week to implement a “permanent” 25 percent tariff on imported automobiles and automotive parts represents one of his most brazen—and foolish—moves yet. For the moment, we’ll leave aside that the president relied on data at least eight years old to ridiculously argue that imported cars threatened national security, that his latest move blows up his own USMCA trade agreement, and that his tariffs can’t both raise substantial revenues (which requires more imports) and boost domestic jobs and investment (which requires fewer imports) as he claims.
Instead, we’ll focus today on just the tariffs’ economics, which—given the reality of global automotive manufacturing and reams of prior analysis—most likely portend higher prices for American consumers, chaos for the US automotive industry, and less domestic production and fewer American automotive jobs in the future.
A Globally Integrated Automotive Industry
To grasp why Trump’s tariffs will cause massive disruptions, consider how integrated the global automotive industry is today, particularly in North America, thanks to decades of open trade (zero tariffs, streamlined procedures, etc.).
Today’s industry is characterized by sophisticated and highly interconnected regional supply chains spanning multiple national borders. In the North American supply chain, the manufacturing of a component like a transmission or engine may require it to travel between the United States, Canada, and Mexico multiple times before finally being incorporated into a finished vehicle.
When tariffs are applied in such an integrated market, costs do not simply rise incrementally—they compound. A single component could therefore be subjected to multiple rounds of tariffs, resulting in exponential increases in the overall cost of manufacturing. In a previous Cato blog post, for example, we showed how a simple car seat capacitor crossed borders five times. According to Canadian manufacturer Linamar, which produces transmissions via factories in the US, » Read More
https://www.cato.org/blog/trumps-automotive-tariffs-will-hurt-american-consumers-producers
