You should have known about the new import duty on steel and aluminum. US President Trump has implemented 25% duty on steel and 10% on aluminum imports.
This post discusses the reactions of US and German automotive industry. Is the response positive or negative? you will find after reading this post. But first, let us discuss in brief the reason for the tariff.
Reason for the Tariffs
In twitter, Trump has said “We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!”. He has informed that if North American Free Trade Agreement (NAFTA) is signed Canada and Mexico will be exempted.
The reason behind the import duty is to favor domestic producers against cheap imports. Sure there are positives for the domestic firms. But there could be potential negatives as well.
1 Impact On US Auto Industry
First let us discuss the impact on US automakers and equipment manufacturers. Following this section, you will find the effects on German auto industry.
What Did Goldman Sachs Say About Top US Auto Companies?
According to Goldman Sachs Strategist David Kostin, Ford and General Motors may suffer an estimated $1 billion loss each. The reason cited was the increase in steel prices which in turn will increase the production costs.
Reactions of US Auto Industry
Ford purchases majority of steel and aluminum from domestic suppliers in the US. Still, the company feels the domestic commodity price rise will render the manufacturers less competitive.
The response from GM was a diplomatic one. A part of the statement reads, “we support trade policies that enable U.S. manufacturers to win and grow jobs in the U.S.” GM is confident in adapting to changing market conditions.
Note: General Motors purchases over 90% of steel from domestic suppliers for US production.
US Motor and Equipment Manufacturers Association (MEMA) has strongly opposed the move. The official website featured a response. The biggest concern is the threat to 871,000 US jobs. The reason outlined is that the tariffs will increase the cost of production.
2 Impact on German Auto Industry
Trouble for Top German Carmakers
German carmakers will probably suffer the greatest financial impact. The tariffs will affect BMW, VW, Daimler and many others.
Reaction From The Top German Auto Association
Bernhard Mattes, the president of the VDA (Verband der Automobilindustries) has raised concerns. (Verband der Automobilindustries is the German Association of the Automotive Industry.) Below is Bernhard’s statement.
“Punitive duties can’t be the answer. A trade war between the USA and Europe must be avoided at all costs. In such a trade war there are only losers on all sides.”
Those who support the tariffs speak about the creation of jobs in the US. Those who oppose warn of ‘tit-for-tat’ taxes by importers of US goods. Only time will tell who is right and who is wrong.