United states: taxes on cars that would weaken the national champions

On the Chevrolet stand at the auto show in Detroit, the United States, on January 13, 2018 (Photo by BILL PUGLIANO. GETTY IMAGES NORTH AMERICA)

In reiterating its threat to impose new taxes to imported cars, Donald Trump runs the risk of weakening the american champions of the car and destroy jobs, but could accelerate the re-negotiation of the treaty of free trade in north america Nafta currently mired.

At the end of a G7 summit that turned into a fiasco, the us president reiterated to consider a customs tax of 25% on foreign cars imported to the United States in the effort to slow the German manufacturers and japanese accused of carving croupières to american brands such as Cadillac (General Motors (NYSE:GM), and Lincoln (Ford (NYSE:F)).

This decision, which is part of the policy of “America first” designed to balance the trade imbalances, is likely to be counter-productive because not only most of the manufacturers targeted were factories in the United States, but automotive groups in the u.s. are among the large importers of vehicles in the country from Canada and Mexico.

To the extent that it occurs at a time when China, the first global automotive market, the opposite way, lowering the tax on foreign vehicles from 25% to 15%.

“The Honda Accord is not a threat to our national security”, lambasted Jeb Hensarling, the republican chairman of the Finance Committee in the House of representatives in Congress. “On the other hand, the tax with tariffs is a threat to the economic security of millions of american families working hard,” he adds.

The firm Trade Partnership Worldwide estimates that additional taxes of 25% are likely to create 92,000 toö industrial jobs but result in the destruction of 250,000 in the rest of the economy. Approximately 1 million american jobs are currently directly linked to the automotive industry (manufacturers and suppliers) against 660.000 in 2010, according to the u.s. Bureau of labor statistics.

– More imports than exports –

The observation of Mr. Trump on the imbalance between the vehicles that are imported and exported in the United States is proven.

In 2017, the United States imported 8,27 million vehicles for a total value of $ 192 billion and exported 1.98 million valued at 57 billion, according to the Commerce department.

But generally speaking, in Washington any cars deemed to be good market and exports vehicles to high range. More than 70% of 371.316 vehicles produced in 2017 by BMW (DE:BMWG) in its plant in South Carolina were intended for export.

“The european car manufacturers not only export vehicles to the United States, but most of them have manufacturing sites are important and therefore create hundreds of thousands of direct and indirect jobs. A great part of their on-site production is exported to other countries, including those of the european Union” defends the ACEA, the lobby of european manufacturers.

“In the United States, Toyota (T:7203) has 10 factories, employs 136.000 people and has a network of 1,500 dealers who contribute to local economies. Taxes on imported cars could affect american jobs and increase costs for consumers,” warns the group to japan.

– Unlock the Nafta ? –

For expert Kristin Dziczek of the Center for Automotive Research in Michigan, it must not be forgotten that the “Big Three” of Detroit (GM, Ford and Fiat Chrysler) could be affected by tariffs.

Its imported vehicles represent 14.5% of the cars sold last year in the United States.

Prior to their marketing on the american soil, these cars are mainly produced in Canada and Mexico, the two Nafta partners have free access to the u.s. market and which account for more than half of the imports (4,27 million), and exports (1.07 million), followed by Japan (21% of imports), Germany (11%) and South Korea (8%).

“We sell regionally, but we compete internationally,” cautions Joe Hinrichs, the head of production at Ford. The second american manufacturer, who had decided to repatriate the production of the Focus from Mexico to the United States under the pressure of Donald Trump, has finally decided to manufacture in China in the face of increasing runaway costs of raw materials such as steel and aluminum affected by new taxes of the White House.

The threat of customs duties on cars imported from Canada could also be a means of pressure to force the hand of Ottawa in the renegotiation of the treaty of free trade in north america Nafta, argue some experts.

“We believe that the bulk of this (threat) is directly focused to find a final agreement on the Nafta,” writes Ed Mills, an analyst at Raymond James. “The rules of the country of origin, particularly for cars, has so far been one of the sticking points in as important” in these discussions, he says.

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