On May 23, 2018, the U.S. Commerce Department said was is looking into how imports of cars, trucks and automotive parts impact the national security and internal economy of the United States.
The investigation could lead to tariffs, which The Wall Street Journal's sources expect to be as much as 25%.
"There will be big news coming soon for our great American Autoworkers," he tweeted on Wednesday.
There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!
— Donald J. Trump (@realDonaldTrump) May 23, 2018
While profits of companies like Toyota, Volkswagen, BMW and Mercedes would take a hit as Trump attempts to give manufacturing in the U.S. a boost, foreign players won't be the only victims.
Last year, the U.S. imported 8.3 million vehicles worth $192 billion. Fifty percent of these cars were imported from Mexico and Canada, where companies like Ford (F) and General Motors (GM) have plants. As the Center for Automotive Research (CAR) pointed out to Deutsche Welle in March, Fiat Chrysler Automobiles N.V. (FCAU) imported more than 45 percent of its total cars sold in the U.S. last year, and General Motors imported approximately 25 percent.
There is also the fact that cars are made of parts from across the globe. When a key auto supplier, Meridian Lightweight Technologies, saw a massive fire at its Michigan plant earlier this month that forced Ford to halt production in Kansas, it shifted dies to plants in the UK and Canada. According to Bloomberg, the value of parts made in Mexico per American-made vehicle is around $3,400 and has tripled in the past two decades.
Guess who pays when tariffs are raised? The customer
Tariffs on these parts and vehicles will be costs transferred to the buyers. Experts had estimated that Trump's previously proposed border tax would have added $2000 to the average price of vehicles sold in the U.S., including those manufactured in the country. If foreign-made cars grow more expensive, it's unclear if production in the country can be ramped up to meet demand. "Production in the U.S. is already running full throttle, with 13 companies, ranging from GM and Ford to Toyota and Honda, churning out nearly 12 million cars and trucks each year," wrote the Detroit Free Press.
"America should be aware that new tariffs are likely to harm American companies and consumers, too," said Bernhard Mattes, the president of the German Association of the Automotive Industry (VDA), in a statement earlier this month. According to the VDA, German manufacturers produced 800,000 units at U.S. plants, where they employ 36,500 people, last year.
Sherman Robinson of the Peterson Institute for International Economics had suggested in an interview with CNNMoney that negotiating with the EU to bring down its 10% levy on American cars would be a more effective solution to help the sale of cars made in the U.S.
It remains to be seen if Trump will suggest exempting Mexico and Canada from auto tariffs or how the administration plans to link cars to national security.