How Trump’s Trade Actions

Could Affect the Auto Industry

Who is the Auto Alliance?
 Leading OEM trade association
 12 Members, about 75% of sales in the U.S.
 U.S. – European – Japanese
 Mission Scope: Environment, Safety, Technology
 Headquarters: Washington, DC with offices in
Sacramento and Detroit
 Economic Impact of U.S. Auto Industry
 Support more than 7 million American jobs

 Generates $500 billion in annual paychecks, $205 billion in federal & state taxes

 Historically contribute 3-3.5% to America’s GDP

 Support network of suppliers and dealers throughout the U.S.

 According to NADA, there are roughly 17,000 auto dealerships nationwide and generate $995
billion in annual sales – 90 % are privately-owned, small businesses
 14 domestic and international automakers currently operate 45 assembly plants across 14
states
Where autos are built

45 14
Plants States
 New Assembly Plants in the NAFTA Region
Pre and Post Agreement
 From 1983 until the signing of NAFTA, 22 new plants were added in the NAFTA region - 16 in the
U.S., 4 in Canada and 2 in Mexico

 Since the signing of NAFTA, 27 new plants have become operational - 15 in the U.S., 11 in Mexico
and 1 in Canada

 One more plant underway in the U.S. and ongoing multi-billion reinvestment in existing plants
 During same timeframe, there has been significant production capacity added around the world,
as global companies compete to meet rising demand and shift to global platforms to cut costs

 Plants in Mexico and Canada rely a great deal on U.S. manufacturing suppliers = supports U.S. Jobs

 NAFTA, while in need of an update to meet the realities of the 21st century, is fundamentally
consistent with a strong automotive sector in the United States
 Plant Openings in NAFTA Region Since 1981
6
NAFTA Goes Into
Effect 1/1/94 Plant Openings 1994 - 2018
5
US: 15
4
Mexico: 11
Plant Openings

Canada: 1
3

U.S. Canada Mexico

Source: Ward’s Automotive
 U.S. Vehicle Sales and Business Cycle Pattern
Historic: seven consecutive
New Light Vehicle Sales in the United States years of increasing sales
1966-2016
18,000,000

16,000,000

14,000,000
Units Sold

12,000,000

10,000,000

8,000,000

6,000,000  Previous record growth in a cyclical industry

4,000,000  Low interest rates critical / average age of car 11+
 Peaked?
2,000,000

--

Source: Wards Automotive

A Global Marketplace – Growth Outside U.S.
World Vehicle Production: 1950 -2015
100,000
Delta 1993-2015 % Change
90,000
U.S. 1,207 11%
Units Produced (In Thousands)

80,000 Canada 37 2%
W. Europe -448 -3%
70,000
China 23,206 1789%
60,000 Japan -1,950 -17%
Other 21,337 361%
50,000
World 43,390 93%
40,000
30,000
20,000
10,000
0

U.S. Canada Western Europe China Japan Other

Source: Ward’s Automotive
 Trump Policies Stimulating the U.S. Economy

 Tax Cuts & Jobs Act of 2017:

 Reduced corporate tax rate from 35% to 21%

 Regulatory Reform:

 EO 13771, “Reducing Regulation & Controlling Regulatory Costs

 In 2017, Agencies issued 67 deregulatory actions and only 3 regulatory actions –
savings of $8.1 billion in regulatory costs
 Trade Policies Could Upend Momentum

NAFTA Renegotiation & potential withdrawal

Recent China 301 Actions

Section 232 Investigation into Imported Steel & Aluminum

Section 232 Investigation into Imported Autos and Auto Parts

 Trump’s Tariffs Compared
Value of imports covered and
Tariff Status (as of May 31, 2018)
possibly covered
Solar panels and washing machines In effect $10.3 billion
In effect with exemptions for certain
Steel and aluminum $44.9 billion
countries

1,333 Chinese products, largely in Thought to be put "on hold," but

machinery, mechanical appliances, now likely to be implemented shortly $46.2 billion
and electrical equipment after June 15, 2018

Under consideration by the US Trade

Additional Chinese products $250 billion
Representative
Under investigation by Commerce $208 billion
Automobiles and auto parts
Department (not counting auto parts)
Sources:
Trump’s Proposed Auto Tariffs Would Throw U.S. Automakers and Workers Under the Bus
Is Trump in a Trade War? An Up-to-Date Guide
https://www.consumeraffairs.com/news/coca-cola-company-to-raise-soda-prices-due-to-aluminum-tariffs-073018.html
https://markets.businessinsider.com/news/stocks/harley-davidson-tariffs-from-europe-cause-tremendous-cost-increase-2018-6-1027314740
https://www.forbes.com/sites/greggardner/2018/07/31/domestic-auto-brands-could-be-hit-hardest-by-25-import-tariff/#38ca97025a08
https://www.agriculture.com/news/business/as-tariffs-bite-china-cancels-us-soy-deals-and-hunt-is-on-for-new-export-markets
https://www.cnbc.com/2018/07/30/global-auto-powers-plotting-response-to-trump-auto-tariff-threats.html
https://www.cnbc.com/2018/06/15/china-announces-retaliatory-tariffs-on-34-billion-worth-of-us-goods-including-agriculture-products.html
https://www.uschamber.com/series/above-the-fold/tariff-war-hits-us-agriculture-and-manufacturing
 Section 232 Auto Investigation Unprecedented &
Unwarranted
 On May 23, 2018, the Department of Commerce initiated investigation to determine if imported
autos and auto parts were a threat to national security

 Provided a 23-day comment period, public hearing held on July 19th

 Section 232 investigations typically contain a detailed request or application laying out the nature
and scope of the investigation. No such document accompanied this notice.

 28 investigations since 1962 (26 by previous Administrations), rarely conducted on finished product,
like automobiles.
 14 of 26 initiated in response to requests by non-government parties
 12 of 26 initiated in response to request by a government agency

 Overwhelming opposition
 Nearly 3,000 comments – only 3 organizations supportive
 Implications of Increased Auto Tariffs
 Increase all new vehicle prices – undermining consumer affordability & dropping demand
 Analyses estimate price of a U.S. produced car to increase at least $2,000 and imported car nearly $6,000 as a result
of a 25% tariff on imported autos and auto parts.
 LMC Automotive projects an annual sales impact of 1 to 2 million units

 Increased auto tariffs will result in a decline in auto production

 Peterson Institute for International Economics (PIIE) analysis estimates a 25% tariff will result in a 1.5% decline in
U.S. auto production

 When sales and productions decline, job losses follow

 Same PIIE analysis projects job loss of 195,000 workers and up to 624,000 should other countries
retaliate with their own tariffs

 Tariffs will depress vehicle exports – the best opportunity for growth in this softening vehicle
market

 By raising vehicle prices, tariffs will stall vehicle fleet turnover

 Average age of a car on the road today is 11.5 years old
 Implications of Increased Auto Tariffs
 Industry witnessing a profound transformation in personal mobility and automakers are
leading the way
 Massive investments in next generation, advanced vehicle technologies – automation and
electrification

 Automakers invest more than $20 billion in annual U.S. R&D, operate 79 R&D facilities
throughout the U.S.

 Partnerships with tech companies like Waymo, Cruise Automation and Uber accelerating the
deployment of Autonomous Vehicles
 Tremendous potential for society – safety, reduce congestion, fuel use and expand mobility

 Next generation of fuel-efficient powertrains, including hybrids, plug-ins, and electric vehicles
will help meet energy and environment goals
 Implications of Increased Auto Tariffs
 U.S. in a global race to lead in the R&D of these cutting-edge, future vehicle
technologies

 Raising auto tariffs will jeopardize our leadership

 Tariffs will mean less capital for automakers to invest in these technologies

 This will ultimately threaten our global competitiveness as eager nations

will seize the lead
 Tariffs Invite Retaliatory Measures
 Raising auto tariffs would significantly expand the U.S. economy’s
“trade war” exposure
 The U.S. imported over $270 billion worth of finished autos and auto parts in
2016
 A tit-for-tat trade war, like the U.S. is now experiencing on steel and aluminum
and China 301, would increase the risk of exposure nearly 5 times
 Exposure hits other sectors, not just autos
 Nearly $160 billion worth of anticipated retaliatory tariffs would fall on non-
automotive U.S. goods
 Agriculture already feeling the pain of steel & aluminum and China 301 actions
Agriculture and Manufacturing Prices
 Soybean Prices 2018
1100
10.89%

1050

4.45%
3.11%
1000 0.62%

950 -1.20%
-3.34% -3.80%
-3.72%
900

850

-14.05%

800

Percent Change Soybeans (USc/bushel)

 Potential Contradiction with Other Major Regulatory Action

 On August 2, 2018, the Department of Transportation (DOT) and Environment Protection Agency
(EPA) released a Notice of Proposed Rulemaking (NPRM) to Revise Vehicle Fuel Economy
Standards for MY 2021-2026 Vehicles

 Agencies largely propose changes to fuel economy standards “to give the American people
greater access to safer, more affordable vehicles that are cleaner for the environment”

 Argue that preferred alternative (freeze MY 2020 standards) will result in a per vehicle savings of
$2,340 for consumers

 So, while on the one hand, vehicle affordability has been a guiding principle that the
Administration has outlined to justify changes to vehicle fuel economy standards, a 25% auto
tariff will jeopardize affordability by increasing the average price of a new vehicle by $5,000
 There’s A Better Way
 Understand the desire for a “level playing field” and the need to address bad actors to
make better deals for American workers and families

 But, tariffs are the wrong approach and will have the opposite of the intended effect

 Better approach is to seek to expand opportunities to grow exports of U.S. made autos

 U.S. only has free trade agreements (FTAs) with 20 countries, giving access to roughly 10%
of global market tariff-free

 Mexico has FTAs with more than 45 countries, giving manufacturers access to nearly 60%
of the global market tariff-free

 Other countries moving on in the global world, leaving the U.S. behind
 There’s A Better Way
 Modernize NAFTA:
 Bring trilateral agreement into the 21st century
 In 2017, U.S. shipped $87 billion in autos and auto parts to our NA neighbors
 Support modifications to auto rules to origin that continue to strike the right balance

 U.S.-EU Bilateral:
 Encouraged by July 25th announcement
 Autos are 10% of transatlantic trade
 Tremendous progress made during TTIP
 Should build on that progress and seek opportunities to address tariff and non-tariff barriers

 Address Regulatory Barriers to Foreign Markets

 Support the acceptance of vehicle certified to U.S motor vehicle safety standards (FMVSS) abroad, in
addition to those certified to meet United Nations Economic Commission for Europe (UN ECE) standards
Bottom Line: Raising Auto Tariffs is the Wrong Approach!
AutoAlliance.org /auto_alliance /autoalliance