Auto Imports and Tariff Effects by Major Trading Partner

November 13, 2018

The Trump administration is reportedly circulating a draft report written by the Commerce Department that outlines results of an investigation into automobile imports and whether tariffs should be imposed. While the findings of the investigation are unknown, the Trump administration, since at least May of this year, has threatened to impose a 25 percent tariff on auto imports from various countries. Doing so would pile on the economic damage already being caused by tariffs imposed earlier this year.

In 2017, Americans imported nearly $293 billion worth of automobiles (under Chapter 87 in the Harmonized Tariff Schedule) from the rest of the world. Table 1 shows the level of 2017 imports from several U.S. trading partners.

Table 1: Chapter 87 Auto Imports in 2017

Source: dataweb.usitc.gov

Trading Partner

2017 imports (billions)

Canada                

$55.6

Mexico

$83.5

European Union

$56.3

Japan

$52.4

Other

$44.8

Total

$292.5

Nearly half of 2017 imports came from Canada and Mexico, and more than a third came from the European Union (EU) and Japan; in other words, nearly 85 percent of U.S. auto imports are sourced from these four trading partners.

Currently, the Trump administration is negotiating with Canada, Mexico, the EU, and Japan to grant exemptions for auto tariffs. According to Sabrina Rodriguez of Politico, “The Trump administration negotiated quotas with Canada and Mexico to exempt their current exports from any potential tariffs. It also told the EU and Japan it wouldn’t impose those duties as long as trade talks were making progress.” Exempting these four trading partners would leave just 15 percent of auto imports subject to tariffs.

As some exemptions may be granted, it is useful to show the economic impact of imposing auto tariffs by trading partner (see Table 2). We estimate that a 25 percent tariff on all imports under Chapter 87 would reduce the long-run size of the economy by $53 billion and eliminate more than 164,000 jobs.

If certain countries were completely exempted from tariffs and other barriers, the damage would be reduced. It is worth noting, however, that quotas impose economic costs too, and the resulting welfare loss of quotas may be greater than that of tariffs. Thus, if other barriers are imposed, or if trading partners retaliate, the effects could be larger.

Table 2. Economic Impact of Auto Tariffs by Jurisdiction

Source: Tax Foundation Taxes and Growth Model, April 2018

Jurisdiction EU Canada Japan Mexico Other Total

Tariff Revenue (billions)

$14.1 $13.9 $13.1 $20.9 $11.2 $73.1

GDP

-0.04% -0.04% -0.04% -0.06% -0.03% -0.21%

GDP (billions)

-$10.2 -$10.1 -$9.5 -$15.1 -$8.1 -$53.1

Wages

-0.03% -0.03% -0.02% -0.04% -0.02% -0.14%

FTE Jobs

-31,668 -31,225 -29,429 -46,930 -25,155 -164,407

The harm from new auto tariffs would be on top of the $42 billion worth of tariffs already imposed by the administration this year. According to the Tax Foundation model, the tariffs imposed so far would reduce long-run GDP by 0.12 percent ($30.4 billion), decrease wages by 0.08 percent, and eliminate 94,303 full-time equivalent jobs.

The bottom line is that tariffs disadvantage American consumers and businesses while reducing employment opportunities and economic output. The Trump administration would do well to stop imposing further taxes on the consumption choices of Americans.

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