Almost headline-grabbing revisions to industry outlooks have emerged due to the U.S. administration’s proposed tariffs on foreign-built vehicles. Changes to the forecasts have not been limited to the near term; for example, S&P Global Mobility has slashed 700,000 units from its forecasts for 2022 U.S. light vehicle sales. The announcement follows a 25 percent duty on completely built units (CBUs) announced earlier this month.
Major Change in Forecast
That’s a sizeable revision down from the 16.2 million units for the year that was previously predicted. According to S&P Global Mobility, this adjustment is “the largest, single-month change” in its forecast and similar to what has been seen during the 2008-2009 Global Financial Crisis and 2020 COVID-19 pandemic The global impact of said tariffs will reduce global light vehicle sales by 1.3 million units based on a worldwide total of 89.6 million units.
How Automakers Are Reacting and What It All Means to the Consumer Market
A number of other automakers, including Volkswagen, Audi, and Mitsubishi Motors, have also temporarily halted shipments of their new models to the U.S. in light of the tariffs. Jaguar Land Rover, which has a significant share in North America, has also halted vehicle exports. These tariffs would have worldwide implications for sales and production, but the U.S. and North America are expected to be hardest hit.
Policy Options Moving Forward and Considerations for the Administration by Secretary
As the tariff is poised to take effect, the U.S. administration has implied that it may have some measures to help the automakers. It is uncertain what forms future policy changes will take. Commerce Secretary Wilbur Ross told negotiators that those are sectoral tariffs, meant to incentivize repatriation of targeted categories of manufacturing to the U.S. — not a bargaining tool. The White House is worried about foreign-made cars taking a bigger slice of U.S. automotive sales away from American-made vehicles and the potential threat to the national industrial base and national security that carries along with it.
Broader Economic Context
Why this tariff? As part of a larger economic backdrop, there continues to be an ongoing discussion regarding tax. Tariff effects for the automotive sector are weighed against wider factors, such as consumer confidence and vehicle prices.
Other Key Insights
Automotive manufacturing and supply are huge drivers of both employment and economic output in the U.S. Cars are made up of parts from suppliers all around the world; it’s an intricate global supply chain. This supply chain is sensitive to tariffs, leading to shifts in production and price changes. It is a melting pot of automotive goodness with heavy domestic manufacturing mixed in with the occasional foreign international manufacturing. Then, it is filled with as many different types of motor vehicle body styles, configurations, and uses as you can get your hands on. The industry comes with a lot of regulations, such as environmental and safety regulations. Technological innovations are being demonstrated in automotive factories, electric and autonomous. Even so, these innovations are still too early in their life cycle to know the impact of tariffs here. The macroeconomic scene includes trade policies touching the U.S. and the U.S.’s trade partners. This administration’s trade policy has been a controversial topic, and its macroeconomic effects remain unclear.
