The Trump administration is considering a 25 percent tariff on imported cars and auto parts to help support the domestic auto industry, but two new studies find that it would have the opposite effect over a three-year period.
This story by Eric Kulisch originally appeared in Automotive News Canada.
First-order negative effects of tariffs on the auto industry and the broader economy would be modest, but the damage increases if trading partners retaliate with restrictions on U.S. exports, they said.
A report by the Peterson Institute for International Economics in Washington predicts vehicle manufacturing would suffer a 1.5 percent loss in productivity, resulting in a two percent drop in auto sector employment, or 20,000 jobs, as the tariffs raise auto prices for consumers and reduce demand. The ripple effects of reduced sales and shipping activity would lead to 195,000 lost jobs in the overall economy.
Counter tariffs on U.S. auto exports would reduce domestic auto production by four percent, costing 50,000 industry jobs and 624,000 total jobs.
The Trade Partnership, a Washington-based econometric firm, said the tariffs would result in three lost jobs in the broader economy for every job gained (92,000) in the auto sector and would raise the cost of a US$30,000 car by about US$6,400. The GDP would decline by 0.1 percent as higher costs, net job losses, and declines in producer and consumer spending power work their ways through the economy.
