How Trade Policies Are Impacting the Global Automotive Industry

Trade policies have lasting impacts on most industries. The global automotive industry could change dramatically with the new US presidential administration.

The global automotive industry has had to recover twice since the turn of the new millennium. The first was the financial crisis of 2008, which caused the industry to face significant challenges. In the United States, many automakers cut underperforming brands and streamlined processes to bounce back. The second challenge was the COVID-19 pandemic, which all but shut down automaking and the supply chain. How could new trade policies challenge the global automotive industry over the next several years?

The automotive market has been on the rise

After the financial crisis, automotive sales grew rapidly and peaked around 2018 before leveling off and then dropping during the pandemic. Automakers have done a masterful job of working to avoid repetitive challenges, by focusing on strategies that will continue to allow the market to improve. That said, there are many developing trends that could challenge the upward momentum, not the least of which are proposed tariffs on products imported by the United States, which would include many of the components and parts used to build vehicles sold here.

How high will the tariffs go?

The incoming presidential administration has made a lot of noise by suggesting massive tariffs on products coming into the United States from various countries. This is one of the ways trade policies could change and seriously impact the global automotive industry. The US auto industry relies on imported parts for some aspects of vehicle production because some parts aren’t built in the United States. Adding tariffs of as much as 25% on products built in other countries will increase the price of vehicles, which is already at an all-time high, causing many Americans to avoid buying new vehicles.

Imposed tariffs could have a lasting impact on the industry

If new tariffs are imposed on imported parts, automakers will have a difficult time pushing forward. Currently, most automakers have vendors that have been vetted for quality, accuracy, and timeliness. These vendors have built partnerships with automakers and deliver products on time and at the right price. Replacing suppliers due to imposed tariffs could mean a radical change to the industry that could take 5-10 years. This could mean significant changes, and some companies might not make it through the process.

Isn’t local sourcing the best way to protect the local economy?

On the surface, it seems that buying products, including parts for vehicles from vendors in the local economy, would be the best way to protect the local economy. This could be the goal of the new trade policies, but it could disrupt the entire automotive industry in the short term. The global automotive industry has become a much tighter and smaller community than several decades ago. Although some vehicles are still built in other countries and shipped around the globe, including those destined for the United States, many automakers have changed the game.

How has the game changed?

If you talk to American auto workers from the 1960s and 1970s, they might complain about the number of Japanese imports from Toyota, Honda, and Nissan. Today, Toyota vehicles that are sold in America are built at factories on American soil. In fact, the Toyota Camry has more parts built in America than some Chevrolet vehicles. This is the paradigm shift in the auto industry that seems to be misunderstood by the incoming presidential administration. Most automakers build vehicles in countries near where they are sold, and closing off products by imposing massive tariffs can have a lasting negative impact on the American industry.

Automakers are preparing for losses

Over the past four years, most automakers have focused on the development of electric vehicle technology, but that could come to a screeching halt if high tariffs are imposed on imported parts from Canada, Mexico, China, and other major contributors to the American automotive market. In many cases, leaders of these countries have already responded to the threats of tariffs with similar tariffs of their own. Still, the possibility of these tariffs has caused many automakers to prepare for massive losses over the next few years, which could slow or stop the development of new technology, including electric vehicles.

How could new trade policies impact the global automotive industry? There are many ways the proposed tariffs could change things, but most of changes would likely be negative, in the short term, and could also be negative in the long term.