The widespread tariffs announced by President Donald Trump last week are expected to increase prices on all kinds of consumer goods, and that includes cars and trucks.
Trump signed an executive order imposing a 25% tariff on all cars imported into the U.S. These tariffs went into effect on April 3. While vehicles manufactured in Canada and Mexico are subject to the tariff, they are able to deduct the cost of parts that were produced in the U.S., in accordance with terms of the United States-Mexico-Canada Agreement.
The North American auto industry has long relied on cross-border trade networks to create competitively-priced vehicles. Most vehicles produced in the United States have some foreign made components. And one of the states most entwined in that network is the one that put the world on wheels: Michigan.
So, how will tariffs impact Michigan’s auto sector?
Glenn Stevens, the executive director of MichAuto, an advocacy group for the industry affiliated with the Detroit Regional Chamber, provided insights on what Michigan can expect.
According to Stevens, changes have already been observed in the auto industry. Since the announcement of the tariffs at the beginning of the year, the industry has been making several adjustments.
“There are things that are changing pretty dramatically,” Stevens said. “It's a very fast moving, very complex industry so companies have already made changes, but there's a lot of scenario-planning going on right now.”
Companies are facing significant changes in their supply chains. Stevens noted that relocating production components, such as an assembly line or assembly plant, takes time. Moving production from one location to another can take months — or even years.
“Companies in the immediate term are looking at, Can I change my material that I'm using to mold my plastic parts? Can I change my steel sourcing?” Stevens explained. “So there's a lot of things going on in the short-term that companies are looking at. But again, there's still not a lot of certainty about what we're dealing with.”
Beyond a method to correct what he considers unfair trade imbalances, Trump has also said the tariffs would boost American manufacturing and strengthen border security against illegal drugs and immigration. However, the shifts required by increasing costs may complicate the supply chains of American auto companies that rely heavily trade with Canada and Mexico to manufacture vehicles.
“They are an intertwined, interconnected, decades-long supply chain that's been developed that is very difficult to unravel and cannot happen overnight,” Stevens said. “And the fear also is that when you do that, if you do that, it makes us more uncompetitive on a global stage. And that's a concern we have, too.”
Background reading:
Trump’s new car tariffs start April 2 in US: What to know
Hear the full conversation with Glenn Stevens on the Stateside podcast.
