US auto manufacturers are facing unprecedented adversity. That’s why the Biden administration’s Section 232 tariffs on imported cars and auto parts, which took effect last month, are so misguided. As you may recall, the 25 percent tariff on all imported vehicles went into effect on April 3. Another tariff on all imported auto parts is set to go into effect on May 3. These tariffs will only strain supply chains and increase costs for American consumers. Experts warn that this will result in increased costs for vehicles across the board.
The automotive industry has built itself on a global supply chain for decades. At the moment there is not a single vehicle model that’s made with 100 percent American-manufactured components. According to a USA Today analysis, even US-assembled cars like the Toyota Corolla include a substantial portion of their components sourced from abroad. A lack of transparency The typical US-made vehicle has roughly 50 percent of its parts or components by value imported from overseas.
The Economic Toll of Tariffs
According to Cox Automotive, the proposed tariffs would raise prices by 10 to 15 percent for heavily impacted vehicles. For vehicles that the tariff does not apply to entirely, a cost increase of 5 percent or more is probable. This shift comes at a time when many manufacturers are struggling to maintain sales despite strong demand forecasts, primarily due to pre-tariff inventory levels.
Gary Hufbauer, a leading authority on international trade, epitomized the plight of US automakers. He noted that they are going to raise prices to the extent that they can. It’s a sentiment that has the industry abuzz. Businesses are rushing to understand how they can offset these increased costs due to the new tariffs.
Jason Miller is an associate professor of supply chain management at Michigan State University. He underscored what an incredibly complicated European auto parts supply chain. All automobiles – even foreign imports – are today at least partially American made. He said at one point, “There’s no vehicle model where 100 percent of the parts are American-manufactured.” He further noted that even if automakers were to assemble cars entirely from domestic components, rising steel and aluminum prices would still lead to increased costs.
The effect of these tariffs is most acutely felt on high volume products such as the Ford F-150. Other crucial components, such as alternators and wheels, are sourced from foreign countries. These will be hit with a new 25 percent tax any day now. For the F-150 in particular, it is claimed that about 45 percent of its parts are imported.
Navigating Exemptions and Agreements
Although the White House has announced that some auto parts would be exempt from tariffs, details are unclear. Senator Bernie Moreno noted that US-assembled cars are able to avoid tariff status. This benefit would be extended to manufacturers receiving input from Mexico and Canada as long as they adhere to the standards set in the US-Mexico-Canada Agreement (USMCA).
This one exemption turns the entire environment massively hostile for manufacturers. They need to be adept at traversing the waters of the tariffs and the requirements of international trade agreements. Miller emphasized Mexico’s strategic importance to the U.S automotive supply chain. He stressed that Mexico is “obviously number one on the list” for vehicle components brought into the U.S.
Despite these complexities, it remains evident that many auto parts used in US vehicles are sourced from countries beyond just Mexico and Canada. This dependence has put huge pressures on domestic manufacturers, who are feeling the squeeze from rising tariffs.
Consumer Reactions and Future Predictions
As the cost of vehicles is predicted to continue climbing, consumer responses range from…Interestingly, many of the same industry voices arguing against tariffs claim that higher prices will push consumers to purchase American-made products. Rising import costs keeping you up at night? Consumers should buy American Jesse Watters wants you to buy American to get richer, not poorer.
Donald Trump used to largely agree with this perspective. He pleaded, “Please raise your prices because if you raise your prices, Americans are going to buy American-made automobiles. This last point underscores a very positive development in consumer mindset as rising prices make people more willing to look for new, better ways to buy.
Cox Automotive estimates that the new 25 percent tariff on imported vehicles will make nearly 80 percent of vehicles priced under $30,000 unaffordable. This big shift will create huge new opportunities for budget conscious buyers. Over the next several months and years, these tariffs will be implemented. Consequently, consumers would see a steep increase in vehicle costs.
