Trump's Tariff Policy: A Backlash for the US Auto Industry

President Trump's tariff policy aimed at protecting domestic industries and the economy could potentially backfire on the domestic conditions of the United States. The increase in import duties to the U.S. has resulted in a surge in production costs for several manufacturing industries. The automotive sector, which is one of the key industries in the U.S., is expected to experience a rise in production costs, leading to an increase in product selling prices by up to 40 percent.

The US international trade policy is primarily aimed at reducing the deficit in the US trade balance with a number of countries. This policy was initially implemented against China around 2018 due to the large deficit in the US international trade balance with China.

Now, Trump has imposed tariff increases on 180 countries with varying values. The country with the highest tariff is Lesotho with a tariff of 50 percent. Meanwhile, in ASEAN countries, the highest tariff is Cambodia with a tariff of 49 percent.

For Indonesia, it is subject to a US tariff policy of 32 percent. This amount is slightly smaller than the US's main rival, China, which is subject to a 34 percent import duty. President Trump has threatened to raise the tariff to 50 percent if China does not surrender in this trade war.

The trade war that initially involved the US and China has now begun to spread to almost all countries in the world. As a result, various imported products entering the US domestic market will experience a price spike at least equivalent to the burden of the tariffs imposed. This of course poses a negative risk for exporters because it will reduce the amount of demand from the US, thereby threatening the sustainability of business for industries in exporting countries.

In addition, the tariff policy will also threaten the manufacturing industry in the US. Because, some raw materials for industrialization in the US are also partly imported from abroad so that it will increase production costs.

One of the US industrial sectors that has been affected relatively significantly is the automotive industry. Trump imposed a 25 percent tariff on imported steel and aluminum products. Both of these commodities are important raw material components for making motor vehicles. Thus, Trump's policy will shake the stability of the automotive industry in his own country.

In addition to the pressure on raw materials, Trump's policy also targets vehicle unit products exported to the US. The 25 percent tariff also targets imported CBU (completed build up) cars and their spare parts, including imported components for cars assembled in the US.

The policy will certainly have an impact on the increasing cost of vehicle products marketed in the US. Both for vehicles produced domestically or imported vehicles. Both will burden consumers in the US.

The tariff policy will be a major challenge for the automotive industry in the US. Moreover, the US is the second largest vehicle manufacturer after China so the impact pressure will be felt significantly for the US. In 2023, the US domestic automotive industry was able to produce 10.6 million vehicles. Meanwhile, China in the same year has made 30.2 million vehicles.

With the tariff policy, there is a possibility of a decline in vehicle production in the US. The record vehicle production of 10.9 million units in 2019 will be difficult to surpass. Vehicle production that dipped slightly during Covid-19 has not been able to stabilize again until now. With Trump's policy, it seems that the automotive market will be even more sluggish.

Meanwhile, China, whose share of automotive products is increasing, will try to be more efficient in managing production costs and selling prices so that it is more competitive in the global market. Moreover, China is one of the countries that controls the supply chain of important automotive raw materials such as steel and aluminum. In fact, China has also become a major world player in the electric vehicle industry and its electric batteries. Abundant raw materials and strong supply chain connections from several countries make China seem very strong in facing strong competition with the US.

While the US automotive production tends to stagnate and shrink, China is actually getting bigger. In 2019, car manufacturers in China were able to produce 25.8 million vehicles. Four years later, that number has increased to more than 30 million vehicles.

With Trump's import tariff policy, it has the potential to make the US automotive industry even worse. The US people, both producers and consumers, will pay a higher price for President Trump's policy.

The ideal situation that Trump hopes for, especially the automotive industry, seems unlikely to materialize. Every component of a car is made in a local US factory, then assembled by a local US company. Even though President Trump said that cars produced domestically are not subject to tariffs at all, it seems impossible without including components or raw materials imported. The US still imports a number of important raw materials from abroad.

The reality of the US auto industry's struggles in the face of Trump's tariffs was described by The Wall Street Journal. The report outlined the countries from which components for the Ford F150 semi-truck, one of the best-selling cars in the United States today, come.

A single Ford F150 is made up of thousands of components sourced from about 24 different countries, said Terry Woychowski, president of Caresoft Global. Some components are imported from Mexico, Canada, Romania, China and South Korea.

For example, alternator parts and tire rims are imported from Mexico. Then the axle components are assembled in Canada and shipped to the US. Car tires are shipped from South Korea. Thousands of imported components are then assembled into one Ford F150 unit in the US.

The US automotive industry has been built through close cooperation with Canada and Mexico. This situation has been going on since the implementation of the North American Free Trade Agreement (NAFTA) free trade area which was ratified by US President Bill Clinton in 1994. With the implementation of new tariffs by President Trump, it means that NAFTA is indirectly no longer effective as previously planned.

Americans will face an estimated 20 to 40 percent increase in car prices due to Trump's tariff policy. The figure was revealed by Mel Yu, an automotive market analyst from Yonsei University, Connecticut, USA. The increase in car prices will occur both for imported CBU (completed build up) and domestically produced cars.

CBU cars are subject to a tariff of 25 percent. This means that US citizens will bear the import duty price. So far, imported cars have dominated around 47 percent of the US car market share. Most imported cars come from Mexico (17 percent) and from Canada (7 percent). Car imports from Mexico and Canada as NAFTA agreement areas are not subject to tariffs. However, with the implementation of Trump's new tariffs, the exemption from import duties is no longer valid.

The US government hopes that by imposing tariffs on imported cars, consumers will switch to buying domestically made cars such as Ford and General Motors. However, the problem is, components of locally made cars are also imported. In fact, raw materials such as steel and aluminum are also not exempt from the 25 percent tariff. Thus, it means the same, both imported cars and locally manufactured cars will experience price increases.

Referring to data released by The Wall Street Journal, the average car price in the US has increased by 33 percent between 2019 and 2024. On average, car prices increase by about 6 percent in a year. With the new tariff policy, automotive consumers in the US will bear the price increase that previously occurred gradually over five years, now there will be a spike in the next few months with a range of 20 percent to 40 percent.

The phenomenon of a significant increase in car selling prices is thought to be endangering the US economy, especially the motor vehicle industry.

Referring to the publication of the Alliance for Automotive Innovation entitled the 2024 industry report, the automotive industry contributes 4.8 percent of the US economy to Gross Domestic Product (GDP) or worth 1.2 trillion US dollars. This industry also contributes to the absorption of around 10.1 million workers and contributes 4.9 percent of jobs in the US.

If the implementation of Trump's tariffs actually has a negative impact on US automotive manufacturers and markets in the future, then the policy is like a double-edged sword. The US under Trump's leadership will experience so many dynamics, one of which is Trump's tariff policy which actually risks weakening his own nation's economy. (LITBANG KOMPAS)