The United States imposed 25 per cent tariffs on imported auto parts yesterday that could sharply raise prices for new and used vehicles as well as for repairs and insurance, reports the New York Times.
The latest tariffs, which President Trump ordered in March as part of his plan to promote domestic manufacturing, come after the 25pc levies on imported cars that took effect in early April.
This second round of duties on imported parts will have a broader impact because even cars made in the United States often have engines, transmissions, batteries or other components produced in other countries.
The administration said on Tuesday that the tariffs were intended “to protect national security by incentivising domestic automobile production and reducing American reliance on imports of foreign automobiles and their parts.”
The tariffs on parts will not apply to components from Canada or Mexico as long as those goods meet the requirements of a North American trade agreement negotiated during Trump’s first term. Among other things, that deal requires that a minimum percentage of the content of auto parts come from within North America.
The administration also said that imported auto parts would not be subjected to other levies, like the ones on aluminium and steel. And companies that made cars in the United States would be exempted for two years from having to pay a portion of the tariffs for imported parts.
Trump’s tariffs have already pushed up new car prices as customers flocked to dealerships to buy vehicles before the levies took effect. The tariffs are having a ripple effect on the used car market as more people look for affordable alternatives to new cars, increasing demand and prices.
The tariffs on new auto parts are also expected to increase the cost of repairs and insurance premiums, because replacement parts will become more expensive. Rising car prices will contribute to overall inflation, which Trump had promised to bring down.
The president has insisted that the tariffs will bring manufacturing back to the United States. But even if that policy succeeds, consumers will still pay more for cars. Many goods, including lots of auto parts, can often be made much more cheaply in China, Mexico or other countries outside the United States.
“A lot of parts, like fasteners, washers, carpet, wiring looms are just not available - we can’t even buy those parts here,” Jim Farley, the chief executive of Ford Motor, told CNN this week.
Automakers and suppliers say it will take years for them to relocate assembly lines. And they are unlikely to commit billions of dollars to domestic manufacturing because of uncertainty about the direction of trade policy.
Trump has frequently changed his mind about the size of tariffs and how they should be applied. On Tuesday, he modified some of the rules to allow automakers to avoid paying duties on a portion of the components they import for two years. The measures provide the industry some relief, but car prices will still rise by thousands of dollars, analysts said.
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