Will Trade Wars Help US Car Industry? Yes and No

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As the Trump administration has announced tariffs on some items and threatened more tariffs on others, the U.S. industry most likely to be buffeted is car manufacturing.

On the negative side, American car companies use both aluminum and steel. The new steel tariff is 25%. The tariff on aluminum is 10%. There is no way to make an exact calculation of the mix of the two metals in models which American manufacturers make. The market reacted as though the effects would be muted. Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) shares barely moved. Each dropped for the week, but that was primarily based on weak sales in February. And, the U.S. companies will try to source the metals inside America’s borders. It is too early to tell if that is possible.

The tariff on cars made in the European Union.  Trump said:

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S.

Which Europe brands are most likely to be hurt? Most likely Volkswagen, BMW, Mercedes and Audi. However, some of the cars manufactured by these companies are made in the United States. This will make the effects muted.

As the growth of the U.S. car market slows toward zero or even starts to fall, U.S. car companies find themselves in a battle for market share against competition primarily from Germany, Japan, and South Korea. Any edge would help them. At one end of the scale, GM’s Cadillac and Ford’s Lincoln could be helped by hefty tariffs on luxury brands, particularly if they affect the market leaders BMW and Mercedes. Both the Cadillac and Lincoln brands have lurched toward irrelevance. What marketing and product development have not done for them, tariffs could do–in part.

Among low-priced cars, the primary brand which would be affected is  VW. It sells very few cars in the United States, less than 2% of the market. Even if no VWs were sold in the U.S., American car companies would not gain much of an advantage, particularly because Japanese and South Korean manufacturers also compete against VW as much as domestic companies do.

Will tariffs help U.S. car companies? If they hit Europe imports, the likely answer is yes.