The proposed U.S. tariffs on car imports will have far reaching negative implications for the whole auto industry, according to Moody’s Investors Service.
The research firm said higher tariffs will cause problems across the car industry’s global supply chain.
“Tariffs on imported cars, parts would be broadly credit negative for industry,” Moody’s said in a note to clients. “A 25% tariff on imported vehicles and parts would be negative for nearly every segment of the auto industry — carmakers, parts suppliers, car dealers, and transportation companies … Should any tariffs be levied, carmakers would need to absorb the cost to protect sales volumes while hurting profitability; increase prices to pass the tariff costs to customers, which could hurt sales; or a combination of both.”
President Donald Trump threatened a 20 percent tariff on auto imports from the European Union last week.
As part of tariffs expected to go online July 6, the administration also has put a 25 percent tariff on Chinese goods including autos.
Moody’s said American automakers will not be immune from the import tariffs. The firm noted both General Motors and Ford depend on imports from Mexico and Canada.
“Tariffs would be a negative for both Ford and GM. The burden would be greater for GM because it depends more on imports from Mexico and Canada to support US operations,” the report said. “In addition, a significant portion of GM’s high-margin trucks and SUVs are sourced from Mexico and Canada … Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the US.”
Trump’s trade policy is already spurring companies to change their manufacturing plans.
Shares of Harley-Davidson plunged Monday after the iconic American motorcycle manufacturer said it will begin shifting some production overseas to offset the impact of retaliatory EU tariffs on certain U.S. goods.