KAR Auction Services chief economist Tom Kontos and Cox Automotive chief economist Jonathan Smoke each examined recent tariff developments originating from the White House during the past week. Each expert discussed the potential ramifications stemming from President Trump proclamations.
Last Friday, Trump delayed proposed auto tariffs on Europe and Japan for six months. Then on Sunday, Trump lifted tariffs on steel and aluminum from Canada and Mexico.
Kontos told Auto Remarketing, “These are good and necessary moves to ease concerns and uncertainty about trade policy and capitalize on what progress has already been made. The delay in auto tariffs is appropriate considering that the threat of tariffs is likely posturing that will prove to be unnecessary if other concessions are made by our trading partners.
“The lifting of tariffs on steel and aluminum from our critically important North American trading partners will help positive, hard-won revisions to NAFTA be ratified in the form of USMCA,” he continued.
Via Cox Automotive’s Market Insights, Smoke wrote a post acknowledging that what might happen in six months “is still unknown.” However, Smoke and the Cox Automotive analyst team made five assertions, beginning with what Trump is looking to achieve with this strategy.
“We continue to believe the aim of the White House is to get new trade deals with Europe, Japan and China,” Smoke wrote. “Postponing any decisions on Section 232 auto tariffs buys valuable time. The auto negotiations will be focused on Europe and Japan. Imports from the EU account for 8% of new-vehicle sales; Japan imports account for 11%. Only Mexico is bigger than Japan in terms of assembled vehicles imported to the U.S. This is most significant for luxury, as over half of luxury imports come from Europe and Japan.”
However, Smoke noted that extending the timeframe hasn’t solved potential problems completely.
“We believe the general lack of details and ongoing delays in the process continues to be a major frustration to the industry and the markets,” he said. “A delay of up to 180 days only prolongs lingering uncertainty that’s been hanging over the industry for almost a year. It is hurting long-term planning and investment decisions at a critical time in the auto industry, as longer-term disruptive threats mount.
So what could Trump want by Thanksgiving when the next deadline arrives?
“We believe the ultimate goal of the current administration is to limit or restrict auto and auto part imports with the goal of reversing declines in U.S. production,” Smoke said. “This direction will have the most impact on crossovers, compact cars and luxury vehicles in the short term, likely leading to lower inventories and higher prices.”
And what about the relationships with Canada and Mexico since so many vehicles currently in dealership inventory and passing down the lanes at auction are manufactured in those countries?
“Long term, we believe strict limits on imports could lead to more production in North America. And, with caps on volumes in the new USMCA agreement, it is likely that any new investments in North America would come to the U.S. That is assuming USMCA is ratified by the U.S, Mexico and Canada,” Smoke said. “The administration recently eliminated tariffs on steel and aluminum from Canada and Mexico, which should help negotiations. Still, ratification is not guaranteed, based on the U.S. political landscape.”
Smoke closed his commentary with one more point.
“The only certainty we see in the delay on Section 232 auto tariffs is that, in the short-term, the market will not repeat last summer’s surge in demand that led to stronger pricing and outright appreciation of used-car values. Instead, we now expect a traditional summer of slowing demand relative to the stronger spring season and, along with it, more predictable price depreciation in the used-car market,” he added.