After Donald Trump’s victory in the US Presidential election, attention is swinging to the potential stance of a future Trump administration in foreign policy and also international trading relations.
In his campaign speeches Trump has suggested a need for higher US import tariffs on a wide range of products from countries including China and Mexico.
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Higher tariffs on finished vehicles or automotive component parts add friction – and cost – to trade in a sector that has been long characterised by globally-based company operations. Moreover, there is a prevalence of complex cross-border manufacturing supply chains that involve thousands of parts in a typical vehicle.
Tariffs and duties on finished vehicles are a particularly controversial policy area as they can, at a stroke, undermine the economic viability of vehicle manufacturing plants that have attracted huge investment sums from manufacturers. When it comes to trade wars and attracting international flows of investment and technology, the automotive sector is often a key battleground.
According to a Bloomberg report, a Honda executive has already warned that any new tariffs imposed on cars imported from Mexico to the US would have a ‘big impact’.
The report cited remarks by Honda Executive Vice President Shinji Aoyama. Honda imports around 160,000 cars from Mexico to the US each year. “If they were to become subject to tariffs, that would have a big impact,” Aoyama reportedly said. “Not just Honda but General Motors, Ford and other Japanese carmakers, too,” he added.
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By GlobalDataGlobalData recently published a report suggesting that while the election outcome would likely have little outcome on the overall US vehicle market, potential disruption to future international trade relations posed the biggest threat to the automotive sector.
GD analyst Justin Cox told Just Auto the election result heightens risks on trade protectionism for the sector, especially in an industry that is so heavily reliant on complex international supply chains.
“The biggest issue for the industry initially to consider, will be prospects for new frictions on trade flows and heightened risk from future elevated tariffs coming out of Washington.
“It could leave European OEMs that export to US particularly exposed. And this all comes at a time when the European OEMs are facing huge competitive challenges in EVs along with potential trade disruption with China – by far the world’s largest automotive market.”
Biden’s tariffs on China EVs, batteries, and semiconductors are expected to remain. “The result perhaps reinforces the difficulties that the Chinese will have in getting a toehold in the US market,” says Cox.
Furthermore, Biden’s proposed ban on vehicles with Chinese or Russian hardware and software likely holds now.
There’s also a more immediate regional trade aspect for North America that a Trump administration may seek to address. “There could be an early review of the USMCA [free] trade arrangement given Trump’s emerging stance on trade relations. That would be a worry for automakers who have highly integrated manufacturing networks across the region involving Mexican and Canadian plants,” Cox maintains.
On EVs, he said another thing to watch is how the policy mix changes in response to the rate of adoption of BEVs over fossil-fuelled combustion engines.
“There is a sense that a Trump administration may be less sympathetic than the outgoing one to BEVs over ICEs, which would slow the electrification transition. We will have to see how policies emerge concerning broader sustainability areas, including automotive.”
BMW says US tariffs could create ‘an advantage’
In remarks that highlight the complexities of international trade flows for global OEMs, BMW CEO Oliver Zipse has also pointed out that its big US (Spartanburg, South Carolina) plant could provide natural cover in the event of new US import tariffs.
Reuters reported that he said, after presenting BMW results, that BMW may even have “more of an advantage” if there were new US tariffs “because we have a very, very large footprint in the USA.”
“In this respect, we shouldn’t be too nervous about what might happen,” Zipse reportedly said. He added that two thirds of BMW’s vehicle sales in the US were produced in Spartanburg.
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