With all eyes focused on President Donald Trump’s escalating trade war with China, another threat looms that could cause big problems for a segment of the U.S. economy.
Trump is expected to announce just before the end of the week whether he’ll impose tariffs on imported autos and auto parts on the basis of national security under Section 232 of the Trade Expansion Act of 1962. More than 360,000 U.S. jobs — including 77,000 at car dealerships — could be lost if Trump decides to enact new tariffs, according to a Center for Automotive Research analysis, which factored current steel and aluminum tariffs, the United States-Mexico-Canada Agreement in its present form and Trump’s threat of imposing new tariffs of up to 25% on auto imports.
Additionally, new vehicle prices could increase between $455 and $6,875, depending on the magnitude of the tariffs, the analysis found. That could push some consumers into the used car market or off the market completely. After a peak of about 17.3 million cars sold in 2018, cars sales could drop by up to 2 million annually. The gross domestic product of the U.S. could decline by up to $62.2 billion.
Car salesman Greg Dion wasn’t aware until last week that Trump could soon slap hefty tariffs on imported vehicles to protect national security. Now, Dion worries his sales at Colonial Nissan in Feasterville, Pennsylvania could be jeopardized.
“It’s like a big storm coming and we’re not prepared yet for that storm,” said Dion, a sales manager and 17-year employee of the new and used car dealership. “So, hopefully, that storm doesn’t come.”
In February, the Commerce Department delivered a report to the White House that assessed whether auto imports posed a threat to national security by undermining the U.S. economy. The report was never released publicly, but Politico reported in March that Commerce officials concluded that Trump has a legal case to impose new tariffs.
By law, Trump has 90 days to react. Saturday is his deadline.
Now, there are several possible scenarios on the horizon, said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research who co-wrote the alarming tariff analysis.
Trump could focus tariffs on certain parts or cars, she said. He could also agree with the Commerce report, but spend 180 days negotiating with U.S. trade partners to resolve concerns, which the law allows him to do. That’d push his decision back to the fall. Or he could say that he’s putting a 25% tariff on all auto imports, effective in 15 days.
“We just don’t know,” Dziczek said.
Charlie Chesbrough, a senior economist at Cox Automotive, agreed, and offered one more scenario that wouldn’t be hard to imagine.
“There’s no guarantee that even if the president announces the tariffs that he’s actually going to do it,” said Chesbrough, adding that Trump just uses tariffs as a means to gain leverage in negotiations.
As Trump’s deadline nears, the auto industry has aligned against his tariffs, which isn’t how the industry normally operates.
“They all have sort of different interests, and they all have different lobbying groups in Washington, for example,” Dziczek said.
A spokesperson for the National Automobile Dealers Association, which represents nearly 16,500 dealerships, shared a statement from the association’s president and CEO.
“NADA understands and appreciates the Administration’s attempts to level the trade playing field and eliminate unfair trade practices, but expansive Section 232 auto tariffs are the wrong tool for the job because they will lead to dramatic price increases, depressed vehicle sales and job losses,” NADA President and CEO Peter Welch said.
The auto industry’s unified front against tariffs is due to never having confronted a major disruption since NAFTA became law in 1993. Crossing borders was tricky after 9/11, but that was sorted out promptly and the supply chain has run smoothly since.
Now, there’s trade uncertainty on nearly every front — with China, Japan, the European Union — and the industry wants order.
Chesbrough said the current trade talks have been “a big monkey wrench in long-term planning” of the industry, which makes it difficult for companies to plan today for what they’ll sell in 2024.
Not only auto manufactures have opposed the tariffs. Some Republicans have said the tariffs will harm the economy.
Senator Tim Scott of South Carolina told McClatchy that Trump is “playing a game of Russian Roulette” with the tariffs, explaining that they’d hurt his state’s economy because foreign auto manufactures, including BMW, employ thousands of American workers there.
Scott and a group of Republican lawmakers met the president on May 2 to try to convince him to drop the old tariffs and steer clear of new ones. The group wants to ratify the USMCA because it would help Americans and domestic industries, not only the auto industry.
After the meeting, Trump seemed to dismiss their concerns, tweeting: “232 Tariffs make Pennsylvania and USA more prosperous/secure by bringing Steel and Aluminum industries BACK. Tariffs are working. Pittsburgh is again The Steel City. USA Economy is BOOMING!”
Senator Chuck Grassley of Iowa, chairman of the Finance Committee, hasn’t been happy with Trump’s tariffs. In April, he wrote an op-ed for the Wall Street Journal, warning that if Trump doesn’t nullify his old tariffs, he could kiss his hopes of replacing NAFTA goodbye.
“If these tariffs aren’t lifted, USMCA is dead,” he wrote. “There is no appetite in Congress to debate USMCA with these tariffs in place.”
Some experts don’t think car dealerships will be hurt. Jeremy Alicandri, an automotive industry consultant at Maryann Keller & Associates, said the impact on dealerships will likely be “negligible.”
“One argument is that dealerships that offer models affected by a tariff-related price increase will have to increase their prices, and therefore be less competitive than dealerships that offer unaffected models,” Alicandri said. “However, it is more likely that automakers with unaffected models will simply increase their prices rather than allow these unaffected models to be less expensive.”
Dion, the Nissan car salesman, wasn’t sure about that. He said he now believes if tariffs go into effect, it’s going to hurt everyone.
“It’s bad for us,” he said. “It’s bad for anybody.”