This week’s announcement of a 25 percent tariff on U.S. imports of passenger cars and automotive parts sent shockwaves through the car industry. Stocks of carmakers around the world took a tumble on Thursday, with companies based in Germany, Japan and South Korea particularly affected by the wobble.
Aside from Mexico and Canada, which are so closely intertwined with the U.S. car industry that the Bureau of Economic Analysis counts sales of vehicles assembled there as domestic sales, Japan, South Korea and Germany are the biggest exporters of passenger vehicles to the United States. Carmakers from these countries, including for example Mercedes-Benz, BMW, Toyota, Honda, Hyundai and Kia sell many of their cars in the U.S., most of which are imported either from production sites in Mexico or Canada or from overseas.
While it’s no surprise that foreign carmakers saw their share price drop in response to the tariff announcement, the fact that U.S. companies were equally affected – General Motors fell 7 percent on Thursday, Ford almost 4 percent – may have taken some people aback. After all, aren’t the tariffs designed to protect the U.S. automotive industry?
Well yes, but even U.S. car manufacturers rely heavily on imported parts and on assembly in Canada and Mexico – making them at least as vulnerable to the new tariffs as actual foreign carmakers. While imports from Canada and Mexico can be partially exempt from the tariffs, the exemption only applies to the share of each vehicle’s components that were “wholly obtained, produced entirely, or substantially transformed in the United States.”
