Should the US Auto Industry Be Worried about Trump’s Tariffs?

Auto stocks in March 2018

In the previous part of this series, we saw how auto stocks largely underperformed the broader market in February. Auto stocks that have been hurt the most include auto giants General Motors (GM), Ford (F), Fiat Chrysler (FCAU), and electric carmaker Tesla (TSLA). These stocks have extended their losses into March. One key negative factor that’s been affecting investor sentiment is softening US auto sales. Let’s take a closer look.

Should the US Auto Industry Be Worried about Trump’s Tariffs?

Worries about Trump’s tariffs

Last year, President Trump ordered a probe under Section 232 of the Trade Expansion Act of 1962. The probe was intended to protect national security and revive the US steel and aluminum industries by ensuring a fair trade scenario. On March 1, 2018, Trump revealed his intention to impose high tariffs on steel and aluminum imports. He plans to impose 25% and 10% tariffs on steel and aluminum imports, respectively.

These tariffs could act as a support for steel and aluminum prices in the US market, which could have a positive impact on the domestic steel and aluminum industries. However, higher steel and aluminum prices could put an extra burden on industries that largely use these metals as raw materials, including the auto industry.

The disadvantage for US automakers

In the last few years, US automakers (FXD) have been challenged by increasing competition in the global market. To stay competitive, they have tried to minimize their costs of production. Trump’s move to impose tariffs on steel and aluminum imports could increase automakers’ production costs since they would have to procure raw materials at a higher price than their international peers.

In addition, if Trump’s import tariffs trigger a global trade war, US automakers could find themselves in a difficult position since other countries could also make a move to save their interests.

Next, let’s take a look at the possible impact of Trump’s tariffs from the perspective of US autobuyers.