The Trump Administration is considering tariffs on foreign cars, with the White House reasoning that foreign imports are a threat to U.S. national security. On Wednesday, Commerce Secretary Wilbur Ross said in a statement that “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.”
An investigation is underway to determine whether the U.S. should take action. Interestingly, the process is similar to what occurred before steel and aluminum tariffs were introduced earlier in 2018.
The Move Won’t Be Surprising to Most Observers
There has been no secret that President Trump has an ‘America First’ agenda. This was a massive part of his campaign, and one of the reasons that his politics resonated so well with voters. The United States economy has thrived on a strong auto industry in the past, however, much of that strength eroded over time. Whether or not that is due to foreign imports is up for debate.
The Commerce Department will investigate whether imported SUVs, vans, light trucks, cars, and automotive parts have had a direct impact on U.S. auto industries. Depending on the outcome of the investigation, there could be new tariffs of up to 25% on foreign imports.
U.S. Automakers Could Benefit From Tariffs
Tariffs on foreign imports would definitely benefit American automakers. It could also provide incentive for companies to bring manufacturing plants back into the U.S., which would create jobs and general economic growth. This could also create returns for investors who already hold stock in some of the largest auto manufacturers.
However, not everyone is responding positively to potential tariffs. The American International Automotive Dealers Association has said that tariffs would be an “economic disaster” affecting “consumers, dealers, and dealership employees.” The association argued that prices would increase, which would directly impact average American families.
The news is also interesting because a number of American auto makers produce vehicles outside of the country. Canada and Mexico are key producers of American brands, and, while they are protected by the NAFTA agreement, there’s no guarantee of whether future imports from either country would be tariff-free. As it stands today, the NAFTA agreement is on shaky ground.
Cars Investors Should Watch This News Closely
Japan, Germany, China, and Brazil are the largest exporters of auto parts and vehicles to the United States. Tariffs could introduce new tensions and could impact key markets.
If you’re an investor in the stock market, whether it be through auto related stocks or other industries like steel production, then this is news that you will want to follow. If you’re an international investor, then you may have already felt the impact as Toyota, Honda, and Mazda all fell on the Nikkei index on Thursday.
Tariffs could provide benefits to American companies, but the repercussions could be damaging, offsetting any gains and possibly impacting general consumer confidence.
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