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Director's Cut: Honk If You Want Auto Parts Tariffs
With this many people owning automobiles, let’s take a deeper look at President Trump’s proposed tariffs on Chinese auto parts entering the US.
Jackie Greene
Sep 27, 2018
The vast majority of American households own a car. The percentage ranges from 85% to 95%, depending on the year and data source, but the quantity is still impressive. With this many people owning automobiles, let’s take a deeper look at President Trump’s proposed tariffs on Chinese auto parts entering the US.
Overall, the US imported $118.1 billion worth of auto parts within the last 12 months. Of the total $3.041 trillion worth of goods and services imported into the US during the same 12-month period, this equates to only 3.9% of import activity. Within that 3.9%, Chinese auto parts accounted for roughly 14%. This suggests that, overall, tariffs on Chinese auto parts will be a pain point for those importing from China, but, with 86% of auto parts originating elsewhere around the globe, tariffs on China alone will not bring down the auto industry.
What is cause for greater alarm is that roughly half of all auto parts imported into the US originate from Canada and Mexico. Historically this would not be cause for alarm, as the NAFTA agreement created paths for businesses to operate fluidly, but talks of imposing similar tariffs on Canadian and Mexican auto parts could start having a larger impact on the auto industry and, ultimately, the consumer. Presently, the only car company in America that assembles 100% of its US-sold cars within the US is Tesla. Even then, not all the parts originate from within the US. In fact, of the 544 car models sold in the US on the 2018 Made in America Auto Index, the model with the highest content from the US and Canada combined has just 76% of its makeup coming from those two countries.
Tariffs on auto parts would likely be passed on to the consumer and could result in lower sales of new cars and higher sales of used cars. Retail Sales at US Used Car Dealers currently equate to a $113.1-billion-and-growing industry. While consumers may avoid some of the impact of auto parts tariffs in the near term by buying used automobiles, those consumers will likely still be affected when they need to make repairs to their aging vehicles, if the tariffs stay in place.
Manufacturers promoting competitive advantages other than price may better weather the storm, but even they would likely still lose some customers, should the tariffs become reality.
Jackie Greene
Director of Economics