CHANGFENG, CHINA - JUNE 30: The first vehicle, a Qin Plus DM-i sedan, rolls off the assembly line at ... [+]
Corrected, March 28, 2024: A earlier version of this article erroneously reported where BYD makes EVs and how many it sells in the U.S. The firm is considering plans to build an EV plant in Mexico but does not produce vehicles there. A spokesman says it sells no vehicles in the U.S.
In a recent campaign speech, former President Donald Trump vowed, “We're going to put a 100% tariff on every single car that comes across the line, and you're not going to be able to sell those guys if I get elected.”
Trump was not clear in that March 17 speech about the target of his tariffs. But what would the consequences be of a 100% tax on imported autos?
Conflicting Plans
It could be catastrophic. At a time when so many people worry about inflation, past experience with other goods suggests a tariff likely would drive up the cost of motor vehicles, domestic as well as imports, used cars as well as new. And rather than add jobs, as Trump insists, these tariffs likely would send thousands of U.S. workers to the unemployment line.
In his March 17 speech, he implied he’d levy the 100% import tax only on Chinese nameplate vehicles made in Mexico. But, while the world’s top seller of electric vehicles, Chinese automaker BYD, is considering plans to produce electric vehicles in Mexico. It currently sells none in the U.S.
At other times, Trump proposed very different import taxes, Bloomberg News explained. He’s promised a 10% tariff on all imported goods, a 50% tariff on all imported Chinese cars, and a 60% tariff on all Chinese goods. Listen to this recent CNBC interview for Trump’s own explanation of how he views tariffs.
It also is not clear whether Trump would tax imports of autos only or also include component parts. The 25% tariffs Trump imposed on Chinese steel imports in 2018 did target materials used to manufacture other products and it seems reasonable to assume any new levy would do the same.
A Complex Supply Chain
What would a tariff on imported autos and parts mean?
Remember, the U.S. auto industry relies on a complex supply chain. Cars assembled by American workers in the U.S. are built with parts from all over the world, especially Mexico and Canada but also China and other countries.
About one-quarter of cars and light trucks purchased in the U.S. are imports, per Haver Analytics data. More than half of all vehicles sold in the U.S. are built by foreign nameplate firms such as Toyota, BMW, or Hyundai. But the National Automobile Dealers Association adds that 44% of them are assembled in the U.S. from a mix of foreign and domestic parts. And often, these brands use fewer foreign parts than U.S.-headquartered automakers.
For example, in 2023, the average domestic content of Hondas was about 67%, while on average about 52% of the components in Ford vehicles were made in the U.S., according to American University’s Made In America Auto Index.
At the same time, the U.S. exports about 77,000 autos and $70 billion in parts to other countries. The biggest component buyers are Mexico, Canada, and—perhaps surprisingly—China. Thus, many imported vehicles are built with some U.S.-made parts.
More Inflation, Fewer Jobs
What would the economic impact of auto tariffs look like? Immediately, a 100% tariff on imported vehicles would come close to doubling their price since most of the tax would be passed on to consumers.
But that would just be the beginning. Domestic producers likely would take the opportunity to raise their own prices, even before figuring in their higher costs from tariffs on the overseas parts they need to assemble their vehicles.
In addition, the jobs of many of the 1 million American workers who manufacture vehicles and parts and the 1.2 million employed by auto dealerships would be at risk.
Then, there is what would happen after U.S. trading partners impose retaliatory tariffs on American imports, which they almost certainly would. Such an ugly trade war would result in still-higher U.S. consumer prices and many lost jobs.
Because Trump’s proposals are vague, no one has figured their impact yet on U.S. employment. But 2018’s more modest 25% tariff on imported steel cost as many as 175,000 U.S. jobs, according to some academic estimates. And they reduced net U.S. income by more than $7 billion, according to a National Bureau of Economic Research working paper.
Economic Uncertainty
Could U.S. firms open new domestic factories to make components and build cars, as Trump hopes? Sure, but it would take years. Besides, big price increases could cause auto sales to collapse, making firms reluctant to make capital investments. Overall, the enormous economic uncertainty such a tariff would create could slow investment well beyond the auto industry.
We don’t know precisely what trade policies Trump would adopt if he returned to the White House. But one thing is certain: A 100% tariff on imported autos would create an economic disaster for U.S. consumers and thousands of workers.
