Brad Setser
Appearances
WSJ What’s News
A New Global Trade Order Takes Shape
Well, the reality is that Detroit makes cars in the United States using Mexican and Canadian parts. It makes cars in Mexico using both American and Canadian parts, and it makes some cars in Canada. So Detroit isn't just Detroit. So it really will depend on where the car is made. For those making cars in Mexico, for example, they'll face substantial tariffs.
WSJ What’s News
A New Global Trade Order Takes Shape
And Mexico supplies a little under 3 million cars to the U.S. market. It is the biggest source, cars, light trucks, biggest source of imports. So there's going to be a substantial increase in the cost structure of North American production, particularly for those companies producing in Mexico or Canada.
WSJ What’s News
A New Global Trade Order Takes Shape
Well, all of these provisions that make it a little easier to avoid paying the 25% tariff, if you're broadly producing using the North American supply chain, those go away real quick. So German cars made in Germany face a 25% tariff. Japanese cars made in Japan face a 25% tariff. Korean cars made in Korea face a 25% tariff. So for a lot of cars, selling to the U.S.
WSJ What’s News
A New Global Trade Order Takes Shape
consumer is going to be a lot more expensive. You're going to have this extra 20% to 25% tariff.
WSJ What’s News
A New Global Trade Order Takes Shape
I mean, of course. I mean, I think there's a couple of interesting dynamics that may not be immediately obvious. One is that a company like BMW imports a lot of parts to the U.S., makes in BMW's case sports utility vehicles, SUVs in South Carolina, and then sells those cars into the U.S. market and into the global market.
WSJ What’s News
A New Global Trade Order Takes Shape
So the imported parts will face this tariff, even if they are being sold back to Europe, back to China and others in Asia. For BMW, that makes no sense. Over time, BMW, if these tariffs stick, will have to move production of its SUVs out of the United States. It doesn't make sense to add to your costs just to pay the U.S. tariff for global production.
WSJ What’s News
A New Global Trade Order Takes Shape
Yeah, but you're going to make the U.S. uncompetitive as an export platform because most export platforms use some imported parts. BMW, of course, can try to sell more cars domestically in the U.S., but it faces that hefty parts import, so it's going to be charging a lot more for its cars. And a lot of others are going to be charging a lot more for their cars.
WSJ What’s News
A New Global Trade Order Takes Shape
And I think there's a risk, and this is the short-term risk, that faced with this increase in price and with uncertainty about whether the tariffs will stick, a lot of consumers may decide not to go into the auto dealer. So there could be a fall off in demand just because consumers are worried that
WSJ What’s News
A New Global Trade Order Takes Shape
basically, the US market is going to be a little undersupplied, certainly undersupplied with cheap vehicles, and they're worried that they're going to be stuck with a high price. And if they think the tariffs may come off, they may wait. So you could see a fall in total US sales. And the irony there is that you would see a pullback in total demand that would impact some of the least affected U.S.
WSJ What’s News
A New Global Trade Order Takes Shape
production. Plus, even the least affected U.S. production has some imported parts that are going to be tariffed. So it's going to be quite disruptive in the near term.