How are Trump's tariffs impacting the auto industry?

CGTN Europe

CGTN Europe interviewed Daniel Harrison, Automotive analyst, Ultima Media

Transcript

00:00Well, let's talk now to Daniel Harrison, the automotive expert at Ultima Media.

00:05Daniel, welcome. Good to see you.

00:06Why do you think the car industry in particular was excluded from this 90-day pause?

00:15Yeah, good to speak with you.

00:16I think there's two main reasons.

00:18The first, which is that Donald Trump for a long time has decried the large trade imbalance

00:25that he perceives is damaging to the U.S. in terms of vehicles in particular.

00:31So Europe exports vastly more vehicles to North America than vice versa.

00:37I mean, there's many, many reasons for that,

00:39not least that many North American vehicles, and particularly U.S. vehicles,

00:43are not actually passing safety standards.

00:46For example, in the U.S., the Tesla Cybertruck can't be sold in the U.K. and Europe for a number of reasons.

00:52So, but also, I think also the notion that he's going to reassure a lot of manufacturing jobs to the U.S.

01:02in new car plants with new investments plays well, particularly with Trump's voter base.

01:08This sense that he can bring back jobs to America, bring back, you know, make America great again,

01:13is his favorite phrase, is what he plays in.

01:17I mean, there's a number of flaws with that argument, too, because so many automotive plants nowadays,

01:22especially on the battery and the electric vehicle side, are so highly automated

01:26that we're talking about relatively few jobs that would come back, even if those investments take place.

01:32So I think they're the two key reasons.

01:35We get preoccupied talking about cars, but it's also worth talking about the car component suppliers,

01:41which is equally as significant, and the wider supply chain.

01:45I mean, what are the short and long-term consequences for both of those enormous associated industries?

01:55Absolutely.

01:55I mean, the automotive supply chain is one of the most complex and globalized in the world.

02:00People underestimate that.

02:01And we've had, what, 40 or 50 years of globalization and relatively free trade,

02:07particularly in North America, within the USMCA free trade agreement, formerly NAFTA area.

02:14And that has developed in such a way that's extremely fine-tuned and requires lots of components from all over the world.

02:21And to suddenly upend that by imposing these trade barriers will cause enormous disruption,

02:29almost like a COVID-style shock if they go ahead.

02:34I mean, we've seen, you know, people trying to, OEMs and tier suppliers,

02:39try to sort of stock up inventories in advance of this and finish vehicles as well.

02:46But that's a short-term measure in the hope that this will be a temporary tariff.

02:52In the longer term, we're going to see massive issues around sourcing components,

02:58trying to reshore as much production within North America or the US as possible.

03:03But it's going to be highly disruptive is the bottom answer.

03:07What does this mean for American car buyers in simple terms?

03:12Vehicles' prices are going to go up as simple as that.

03:17This is ultimately a tax on consumers,

03:20and that's widely accepted amongst leading economists and industry observers.

03:25If you add a tax or tariff to the import of those parts,

03:29whether it's coming from China, Europe, or even Canada and Mexico,

03:34because I believe these tariffs will also apply to non-USMCA content,

03:39that will inevitably increase the cost of the vehicle.

03:44You know, most automotive production has a margin of around 5% to 6% at best.

03:49So if you're going to apply a 25% margin,

03:52whether it's on the individual components or the finished vehicle,

03:58clearly prices will have to rise to make that product viable to be sold.

04:03Daniel, thank you for that.

04:05Daniel Harrison, the automotive expert at Ultima Media.

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