U.S. Auto Tariff Could Slow Global Growth

February 20, 2019
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After a rough year of tit-for-tat tariff exchanges, 2019 has been quiet on the trade front. The White House is currently working through a new trade agreement with China. Many believe that this agreement could result in economic stability and a better deal for Americans.

However, even while a China deal is being developed, the White House could still implement a blanket tariff on foreign auto imports. According to reports, these tariffs would disrupt up to $500 billion of global trade.

Germany and Japan Would Suffer the Most

Germany, Japan, Mexico, and Canada are the top auto exporters doing business with the United States. If Trump were to introduce new tariffs on autos this year, German auto exports could drop by 50%. Germany’s auto manufacturing industry is supported by smaller industries in Spain and Hungary, which would also suffer if tariffs were applied. The immediate economic impact could be worth at least $8 billion.

Japan would fare slightly worse, losing up to $9 billion from the American market. Brands like Toyota, Mitsubishi, Subaru, Honda, and Nissan would all be affected.

South Korea has a much smaller auto industry but its business with the United States is still significant. The IFO Institute for Economic Research in Germany expects that South Korea could lose up to $3 billion from its export business.

Canada and Mexico both manufacture cars sold in the United States. However, with the ratification of a NAFTA replacement expected soon, these trade partners would most likely be exempt from tariffs.

Total Economic Tariff  Impact to Be Much Higher Than Initial Losses

Moody’s Investors Service, a multinational bond credit rating business, estimates that total global impact would amount to $500 billion. Analysts said this week that vehicle and parts tariffs would “reverberate across global supply chains. The already weakening pace of global expansion would magnify global growth pressures, causing a broader hit to business and consumer confidence amid tightening financial conditions.”

Stock investors have a lot of good momentum in the market this year. Potential new tariffs could undermine current confidence, although it remains to be seen what the White House will do next.

The Commerce Department has delivered a report to President Trump, outlining whether auto imports are a threat to national security. Details are expected to be made public in the coming weeks, with follow-up tariffs depending on a decision from the President.

The NASDAQ Composite is so far up 12.83% year to date, while the S&P 500 index has grown 10.89% in 2019.

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