If you have been thinking about buying a new car, you may want to do it sooner rather than later. This is because President Trump has floated the idea of imposing more tariffs on the automobile industry, and the result could be you having to spend a lot more to get the car you want.
But why is this happening? What benefit would a tariff on automobiles provide the United States? And how likely is it that these tariffs go through? Here’s what you need to know:
What is a Tariff? To start, it’s important to understand what a tariff is. Essentially, it is a tax on a product made abroad. So, if you want to buy something from overseas, you would end up paying more. The idea behind tariffs is that if the item from abroad costs more, someone in the U.S is less likely to buy it, and therefore opt for something made at home.
The Proposed Tariffs
Recently, President Trump floated the idea of putting either a 20 or 25 percent tariff on auto imports. He asked his Commerce Department to study whether importing automobiles from another country posed a national security risk, which was the same rationale he used to place a tariff on Canadian imports. Without this national security risk, Trump would not be able to single-handedly place the tariffs and would instead need Congress to pass legislation.
These tariffs would come after Trump already placed a 25 percent tariff on Chinese goods, which included their automotive sector, and tariffs on imported steel, which impacts our own car manufacturing industry.
How These Tariffs Would Impact Car Prices
One study recently found that if the proposed tariffs were to go through as discussed, some cars could end up costing thousands of dollars more. According to the Peterson Institute for International Economics, the price of a new car could go up between $1,400 and $7,000 for the top-selling models.
The study also found that the price of all cars would go up, even if they were made in the United States. This is because no matter where the car is made, it uses parts from other countries. These parts would also be under the new tariffs, and therefore it would become more expensive to make the car at home. These cost of business increases then get passed onto the consumer.
The cars hit the most would be the luxury brands. These models typically have the most foreign parts or are made abroad. As an example, the study found that the base price for a Mercedes Benz GLC-class would jump almost $9,000, while a car like the Chevy Cruz would only jump about $2,100.
The Personal Impact of These Tariffs
These tariffs, if implemented, could have a large impact on the population here. For instance, rather than searching for “who buys junk cars” and getting rid of their old model for something new, more people will be forced to drive around in a car that is out of date, and potentially unsafe.
But tariffs like this could have an even bigger impact. The U.S auto manufacturing industry employs thousands of people. If the cost of doing business goes up, it’s possible that there will be large layoffs at many manufacturing plants. Already some companies have had to make layoffs because of Trump trade policies, and these tariffs would likely only increase the number of people who lose their jobs.
The Reason for the Tariffs
If these tariffs would have such a negative impact at home, why is the Trump administration doing it? The answer they give is that the tariffs will help to lessen our trade deficit with other countries. A trade deficit is when your country buys more products from another country than it sells to it. Trump has routinely been upset at the massive trade deficits the United States operates at with other countries, and has vowed for years to do something about them.
However, most economists agree that trade deficits are not necessarily a bad thing. The United States has largely moved away from a manufacturing country and is now primarily a service-based one. Due to this, and the fact that Americans like to buy a lot of things, we operate at trade deficits, which don’t account for our service industries like tourism and banking.
What Comes Next?
Time will tell if the Trump administration implements these tariffs fully or some portion of them. If they do, you could see a price tag increase when you go to shop for a new car. So, if you’ve had your eye on a new car but haven’t pulled the trigger yet, you may want to think about getting it now.