U.S. Steel & Aluminum Tariff Plan Backfires Auto Industry


President Trump has finally nailed it done. On March 8, Trump officially issued the new tariff plan by imposing 25 percent tariff on imports of steel and 10 percent tariff on imports of aluminum. After threatening to upend global trade for almost a year, his sweeping tariffs on steel and aluminum is clear-cut.

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The new tariff plan aims at encouraging U.S. companies to buy steel and aluminum from U.S. local manufacturers to further revive the domestic metal industry. However, tariff opponents have argued that what may be good for U.S. steel will put domestic industries at risk.

Increased Cost of Automakers

Tracing back to 2017, U.S. imported 26.9 million metric tons of steel and was world’s largest steel importer. In terms of the import source, Canada is remaining the top spot for years and therefore acquired exemption with Mexico in Trump’s tariff adjustment.

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As a major raw material of vehicles, the hiking commodities costs would increase financial to the automakers and result in the rise of car price. It’s estimated that the levies will add $300 extra to the price of the cars bought in U.S. showrooms.

Many automakers expressed concerns even doubted the purpose of Trump. Like what Honda said: “imprudent tariffs imposed on imported steel and aluminum would raise prices on both domestic and imported products, thus causing an unnecessary financial burden on our customers.” The levies will ultimately hurt U.S. citizens. Another auto giant – Ford, who bought the majority of its steel and aluminum from U.S. producer, also stated:” The growth of domestic commodity prices will harm the competitiveness of American manufacturers”

Predictable Job Crisis

The forced price growth in vehicle industry will definitely influence the sales of U.S. cars across the globe. Due to the sensitivity of car sales to price, we estimate that the price surge of U.S.-made cars would result in a decline of between 1.6 and 3.6 percent in global sales.

We found there is tight relationship between U.S. car sales and employment. Therefore, the following effect is obvious, the heavier production cost and sales fall make automakers have to reduce labor to keep the balance sheet good-looking.

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Based on the relationship shown in the chart, we estimate the declining sales to would translate into auto-industry unemployment ranging from 18,000 to 40,000 by the end of 2019.

Other Risks

While the tariffs are not expected to shake U.S. or global economy, however, there must be risks underneath the trade war.

The EU has already warned that counter measures would take into action if it is not exempted from the tariffs, while Chinese commerce minister Zhong Shan said that a trade war would only bring “disaster” to the global economy, and there’s no “winner” in a trade war.

Some powerful counties are likely to strike back. For example, China, Canada and other nations could decide to retaliate right away by increasing tariffs on some U.S. goods exporting to their countries.


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