Trade and tariffs are complicated issues with serious implications. Recent events have brought the tariff imbalance between the United States and the European Union into the forefront of discussion.
Currently, the auto tariffs by the U.S. are only a mere 2.5% (25% for pickup trucks and utility vans) but the EU rate is 10% across the board. While the gap is clearly evident, a closer look at the situation makes the way forward crystal clear. Below are three reasons why increasing auto tariffs is a bad idea.
1. Jobs will be at risk
Automotive jobs would be at serious risk. In 2016, 47% of vehicles sold in the U.S. were built domestically by foreign-based companies. These companies also exported 925,000 vehicles to 140 other markets.
Because higher prices will suppress U.S. sales for imported cars, production would likely shift back to the home countries to utilize that available capacity. This puts over 130,000 American auto manufacturing jobs in jeopardy under an action aimed at protecting jobs.
Additionally, this would ripple to other non-manufacturing jobs in areas like finance, insurance, dealerships, and service departments.
2. Foreign investment could be jeopardized
Foreign investment in the U.S. could falter. Automotive based investment from foreign companies currently exceeds $75 billion. This doesn’t include many recent announcements since late 2017.
If the U.S. hopes to continue this trend of high-stake investment from foreign companies, nothing should be changed. The future should look more like the recent past, not something entirely different.
3. Stay the course
It is clear that even well-meaning import levy tactics can have adverse side-effects. With complicated and globally integrated supply chains, automotive manufacturing is the most difficult industry to isolate.
Parts and assemblies typically cross borders numerous times before being transformed into an automobile. Individual components and raw materials are frequently sourced from other manufacturers as well. Simply raising import duties is not a solution. In fact, it is a bad idea.