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Impact of New Tariffs on U.S. Auto Market
DETROIT — The recent announcement by President Donald Trump to impose an additional 10% tariff on imports from China is set to influence the U.S. automobile industry, albeit primarily affecting a limited number of vehicles imported into the country. The broader repercussions, however, may be felt through the increased costs of auto parts, further compounding the already steep prices for consumers.
According to the U.S. International Trade Commission, the U.S. imported approximately $15.4 billion to $17.5 billion in transportation-related goods from China in recent years. This figure includes around $9 billion to $10 billion specifically allocated for auto parts and accessories used in vehicles and specialized transport equipment.
The primary vehicles facing the strongest impact from these tariffs are the Lincoln Nautilus from Ford Motor Company and the Buick Envision from General Motors. Together, these crossover vehicles accounted for 83,884 units, representing 95% of the 88,515 vehicles produced in China and sold in the U.S. last year.
Jeff Schuster, vice president of automotive research at GlobalData, noted, “It’s mainly GM and Ford that are significantly affected in terms of volume. These domestic manufacturers will bear the brunt of the tariffs for complete vehicles, though some mitigating factors may be present.”
Production adjustments are already a trend among various manufacturers. For instance, Volvo, which operates under China’s Geely along with its electric vehicle offshoot Polestar, is reported to have reduced its imports from China. This shift has been particularly pronounced in their electric vehicles, especially following the 100% tariff implemented last year on such imports.
Representatives from Ford and General Motors have refrained from commenting on possible adjustments to production or pricing related to their China-manufactured vehicles. Volvo and Polestar have also not provided updates in this regard.
Data from GlobalData indicates that vehicles originating from China accounted for a mere 0.6% of the approximately 16 million new vehicles sold in the U.S. last year, a figure comparable to imports from the United Kingdom, Sweden, and Slovakia. Conversely, tariffs on vehicles from Canada and Mexico, which made up 23.4% of U.S. sales last year, would likely have a far more significant impact on the automotive market.
Mark Delaney, an analyst at Goldman Sachs, highlighted the irony of the situation, stating, “While vehicle imports from China are minimal, the value of auto parts imports hovers around $15-$20 billion annually. Additionally, China plays a crucial role in the supply chain for battery components, particularly lithium iron phosphate (LFP) batteries utilized in energy storage systems.”
The extent to which tariffs will affect battery components and raw materials for electric vehicles remains uncertain, especially as the market for these vehicles has been growing slower than previously anticipated. Nonetheless, a significant number of electrified vehicles in the U.S. feature components sourced from China, as indicated by data from the National Highway Traffic Safety Administration. Noteworthy examples include models like the Genesis G80 EV (25% Chinese components), Hyundai Kona EV (50%), and Toyota bZ4x EV (20%), among others.
Mike Jackson, executive director of strategy and research for the MEMA Original Equipment Suppliers, expressed concerns regarding the potential implications of the tariffs. “The 10% tariff on Chinese imports may not be as impactful compared to tariffs on vehicles produced in North America, but it certainly adds to the overall cost structure,” he mentioned during the Federal Reserve Bank of Chicago’s auto conference in Detroit. “China remains a vital contributor due to its advanced capabilities in electronics and diverse manufacturing capabilities.”
How automakers will respond remains to be seen. Whether they will absorb these increased costs, shift sourcing strategies, or pass them on to consumers may dictate the competitive landscape. Should automakers choose to pass on these costs, they risk exacerbating an already challenging sales environment. Current trends highlight new vehicle prices averaging around $50,000, according to Cox Automotive.
Stephanie Brinley, a principal automotive analyst at S&P Global Mobility, remarked, “While there isn’t a specific product from China that stands out as causing significant disruption, the overall costs will rise. This plays into a larger narrative concerning pricing challenges within the industry.” She further noted that these potential price hikes could adversely affect projected new vehicle sales, which S&P Global Mobility had previously estimated to be around 16.2 million units prior to the announcement of these tariffs.
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