Donald Trump could impose a drastic increase in tariffs for cars imported to the US in a bid to increase the competitiveness of the country’s automotive industry.
The US president has launched a probe to investigate whether the vehicle and automotive parts imports are hindering the sector’s ability to compete globally. Under the US’s Trade Expansion Act of 1962, such a scenario could allow Trump to raise import tariffs to protect national interests.
This was the process undertaken last month when Trump raised tariffs for steel and aluminium imports. Tariffs for those materials now stand at 25 percent in order to protect local producers. Some reports suggest this figure could become a target for car imports.
Currently, the US charges just 2.5 percent on car imports, which is lower than the European Union’s 10 percent and China's 25 percent- although the latter country will lower its tariff to 15 percent from 1 July. Trump has previously described China’s unusually high import tariff as “stupid trade” and threatened to raise tariffs on European Union-imported cars.
Although a large portion of the US’s most popular car models, including those from foreign brands (such as the upcoming BMW X7), are already manufactured within its borders, many are imported from other countries. Most imports come from Asia, but several European brands, including Land Rover, don’t have US factories.
In fact, America is the largest export market for cars built in the EU. Last year, £171 billion (Rs 15 lakh crore) worth of cars were exported from the EU, with the US the destination for 25 percent of them. Of those cars, just over half were exported by German car makers.
Leaders in China and South Korea have already said they will monitor the situation closely and react accordingly to protect the interests of brands from their countries.
Although China is the world’s largest new car market, with 23.9 million vehicles sold there last year, the US remains a core focus for most global brands. In 2017, 17.2m vehicles were sold in the US, compared with 15.63m in the EU and European Free Trade Association countries.