Automakers Breathe Sigh of Relief as Trump Delays U.S. Tariff on Autos, Parts by Up to Six Months

Researched by Industrial Info Resources (Sugar Land, Texas)--On Friday, President Donald Trump announced that he would delay proposed tariffs on imported automobiles and automobile parts by up to six months as the U.S. negotiates trade deals with Europe and Japan. Most automotive companies, both in the U.S. and abroad, have opposed the tariffs, saying they would inevitably lead to higher expenses for the consumer in the form of increased prices, which would lower unit sales. The tariffs would affect not only imports of automobiles produced outside the U.S, but also those produced in the U.S. that use parts manufactured in other countries, which is why domestic manufacturers have spoken out against them. Among the U.S. regions that could be most affected are the Great Lakes region, home to most of the U.S.-based manufacturers, and the Southeast, where many foreign manufacturers have set up shop. Industrial Info is tracking more than $270 billion in automotive-related projects throughout the world, including $35.3 billion in the U.S. and $36.3 billion in Europe.

Trump still hasn't outright rejected a proposed 25% tariff--just delayed it while negotiations proceed. Among the companies that could be hardest hit are German automakers such as Mercedes-Benz (Stuttgart, Germany) and Volkswagen (Wolfsburg, Germany), which manufactures not only Volkswagen automobiles, but Audis as well. Among Mercedes-Benz's active projects in the European Union is a grassroot engines manufacturing plant in Poland, which will produce both gasoline and diesel engines. Construction on the plant began in early 2018, and it is expected to be completed this summer. For more information, see Industrial Info's project report.

In North America, Mercedes-Benz has a large SUV assembly plant in Vance, Alabama, which could potentially be affected on a tariff on foreign-produced auto parts. An expansion of the 310,000-unit-per-year plant is underway to increase production capacity to manufacture the EQ electric SUV. Construction kicked off in late 2017 and is expected to be completed by the fourth quarter of this year. For more information on the $500 million project, see Industrial Info's project report.

Among those who have criticized the proposed tariffs is Volkswagen Chief Executive Officer Herbert Deiss, who has said the tariffs could cost Volkswagen has much as $2.8 billion annually. Volkswagen is in the process of expanding its vehicle assembly plant in Chattanooga, Tennessee, which currently manufactures approximately 300,000 vehicles per year. The expansion will enable the production of a new five-passenger SUV. Construction began last summer and is expected to be completed in the fourth quarter of this year. For more information, see Industrial Info's project report. If car sales are lowered because of imposed tariffs, other potential projects could be thwarted. For example, Volkswagen is in the early planning stage for establishing an assembly line for electric vehicles at the Chattanooga plant or an alternate site. For more information, see Industrial Info's project report.

Among other projects currently underway that could potentially be affected by a tariff on foreign-produced auto parts is a joint venture project of Japan-based companies Toyota Motor Corporation and Mazda Motor Corporation in Huntsville, Alabama. The $1.6 billion plant broke ground in November 2018. The facility will manufacture the next-generation Toyota Corolla and a Mazda crossover SUV. For more information, see Industrial Info's project report.

Among the reasons Trump has cited for potential implementation of an automobile tariff is that of national security. A presidential proclamation issued Friday said, "The rapid application of commercial breakthroughs in automobile technology is necessary for the United States to retain competitive military advantage and meet new defense requirements. ... [S]uccessful negotiations could allow American-owned automobile producers to achieve long-term economic viability and increase R&D [research and development] spending to develop cutting-edge technologies that are critical to the defense industry."

However, critics of the potential tariff abound, pointing out that most automobile imports come from strong U.S. allies. According to a New York Times report, Mexico, Japan, Canada, Germany and South Korea were together responsible for more than 85% of American automotive imports in 2018. While U.S. and foreign automakers have earned a temporary reprieve from the tariffs, their ultimate fate depends on how well future trade negotiations go between the U.S. and other countries.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.