How Trump Tariffs Could Impact The U.S. Auto Industry

President Trump recently lent his support to the Commerce Department recommendation for raising import tariff on aluminum and steel. The new tariff of 25% on imported steel and 10% on imported aluminum will go into effect in 15 days on imports from all countries except Canada and Mexico, with which the North American Free Trade Agreement (NAFTA) renegotiations are ongoing.

Canada And Mexico

The U.S. has taken a hard stand on NAFTA, which was initially signed in 1993. There is a demand to allow the U.S. government to review and possibly overrule the decision of the arbiter in disputes between an investor state and the government of the country where the investment is made. There is a proposal to allow NAFTA to expire in five years unless all three countries agree to renew it.

There is an attempt to limit liability for Internet companies like Google, Facebook and Comcast when they host or transmit online content. There is also an unquantified demand to strengthen the auto industry’s “rules of origin” (minimum percentage of a vehicle’s production to originate in the U.S.).

There are special demands of Canada, which is the largest exporter of steel to the U.S. while protecting some of its own industries such as milk & other dairy products and softwood lumber. If the demand to open up these markets isn’t met, Trump will pull out of the NAFTA, in which case, the high import tariff on Canadian steel will kick in.

Mexico is the new low-cost manufacturing location after Asia, with a proximity advantage, which is the main bone of contention with it (other than illegal immigration). But the last round of negotiations weren’t targeted at Mexico.

So the tariff increase for Canada and Mexico is basically something the U.S. intends to use as leverage to get more favorable NAFTA terms (6^th round negotiations are slated for this month).

The EU

The EU, especially Germany is where many of the big auto companies are located, so this could be when talks of a free trade deal resume (talks were temporarily paused after President Trump’s election but both sides have been warming to the idea in recent times).