It’s not looking good folks...

Automakers rely heavily on global trade. Cars built here in the U.S. are exported into other markets while cars built in other parts of the world are sent here. In a perfect world, things would balance out but our world isn’t so perfect is it? Never has that been more evident than now with Donald Trump preaching a potential tariff war, all of which started with the suggestion of taxing imported steel and aluminum. Now, according to a recent tweet, he has his mind set on taxing European vehicle imports as a way to retaliate against any further increase in Tariffs toward U.S. companies in Europe.

Donald Trump’s Tariff War

If Donald Trump does increase the tax on European cars, you can expect to see some significant price increases on some of your favorite luxury vehicles.

This isn’t a joke, folks, and, if Donald Trump does increase the tax on European cars, you can expect to see some significant price increases on some of your favorite luxury vehicles. And, you don’t have to take it from me. Arndt Ellinghorst, the head of global automotive research grim, Evercore ISI, told CNBC that “the Germans, in particular, are very, very exposed.”

We’re talking about German brands like BMW, Audi, Porsche. Bmw, for example, sells more than a quarter-million cars in the U.S each year, some 70 percent of which are imported. According to Ellinghorst, an increase of 5 to 10-percent in tax on each model could cost the automaker as much as $800 billion – Some of that cost, naturally, would have to be passed onto the customer.

U.S. – Europe Tariff Balance

Trump may simply be talking about balancing out the system, but it’s clearly too soon to say.

It’s not all cut and dry, either, and Trump may be onto something. See, cars that are built here in the states and shipped over to Europe have a 10-percent tax right off the top. Meanwhile, cars coming the other way see just a 2.5-percent tax. These are taxes that automakers have to pay for each vehicle that comes in. Clearly, the balance is way off, with U.S. automakers having to pay considerably more than their European counterparts. With any luck, and as Ellinghorst pointed out, Trump may simply be talking about balancing out the system, but it’s clearly too soon to say.

Trump’s View on Germany and the Facts

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German automakers have invested in more than 250 plants and employ more than 100,000 American workers

This drama goes further back than the past couple of weeks, though. At one point in 2017, Trump said referred to Germany as “bad, very bad” over its importation of cars sold in the U.S. Of course, he wasn’t enlightened, or just didn’t care, that German automakers have invested in more than 250 plants and employ more than 100,000 American workers, all of which contribute to building more than 850,000 German-branded vehicles right here at home – a figure that has more than tripled since 2010.

Should We Worry About Trump’s European Tariff?

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It’s other brands, however, that will be hit harder and will likely see even bigger increases.

Yes! Trump’s Tariff War won’t just affect Brand’s like BMW or Volkswagen – both have one plant here that do manufacturer some cars for the U.S. market. Of course, if BMW and Volkswagen are taxed on that extra cost will be spread across the whole lineup, ultimately causing an increase across the board. It’s other brands, however, that will be hit harder and will likely see even bigger increases. I’m talking about brands like Land Rover, Audi, Jaguar, Porsche, and Fiat – none of which produce any vehicles here in the U.S. Even Volvo will be hit hard, with just six percent of its vehicles being built in the U.S. (figure accurate as of 2016)

So, if Trump ends up having his way, you could see the price of every imported luxury vehicle out there going up, and it could be as much as five or ten percent – now that’s a serious price increase for a number of vehicles that already sit outside the range of affordable for a large chunk of the population.

Trump’s Tariff War Affects the Whole World

Next, the EU will tax American car imports even more; then more American brands will be taxed

Sure, some EU automakers will absorb some cost of increased import taxes, but they post massive profits each quarter – it’s not going to hit them where it really hurts. Those that will be hurt are the consumers. And, not just U.S. consumers either. See, we’ll undoubtedly have to pony up for the increased import taxes on cars, but Trump’s little war will have a serious global effect, and it will begin to hurt European consumers as well. As soon as Trump mentioned a 25-percent tariff on steel imports, EU Commission President, Jean-Claude Juncker, suggested increasing tariffs on American imports to the EU, including brands like Harley Davidson, Kentucky Bourbon, and Levi’s jeans.

It won’t stop there, folks. Next, the EU will tax American car imports even more; then more American brands will be taxed. Eventually, prices for those of us at the mercy of being consumers will find it’s too expensive to purchase anything that wasn’t built right here at home. Those living in Europe will be forced to purchase products made in Europe or imported from places other than the U.S. because it’s just too expensive. Brands will begin to lessen their presence in both markets and eventually, the process of trade will completely break down.

In the short term, you can expect to see vehicle costs rise for anything not built in the U.S. And, it may even happen sooner than you think as automakers could increase prices ahead of time to help cut their losses. But, in the long term, should this thing play out with the E.U. and U.S. engaging in an all-out trade war, products could end up getting very expensive for all of us. That’s bad for us, that’s bad for businesses, and ultimately, it’s bad for the global economy.

References

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Source: CNBC

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