Al Root
President Donald Trump's 25% tariffs on all imported cars and key car parts threatens to upend industry profitability. It will also challenge what actually qualifies as a car part.
"While full details were not available....we estimate this could impact about $306 billion of U.S. imports," wrote Macquarie economists David Doyle and Chinara Azizova on Thursday.
The U.S. imported more than 7 million cars in 2024. That's worth roughly $250 billion, according to Macquarie's math. The rest is made up of parts.
That's only about $35,000 per imported car. The average new car price in the U.S. is about $48,000. Don't forget that car companies such as Tesla, Ford Motor, and General Motors sell at wholesale prices to dealers, and the dealerships sell at retail prices to U.S. consumers.
"At the time of this writing, it is unclear what specific HS codes will be impacted by the presidential proclamation."
HS codes might be a new concept for investors. Along with evaluating tariff impacts on profitability and long-term capital allocation decisions, investors will have to brush up on those codes.
HS is short for Harmonized System, "an international index used for categorizing goods, enabling consistent classification and taxation," according to UPS. HTS codes are related. HTS is short for Harmonized Tariff Schedule.
These eight or 10 digit numbers are used to classify goods. Canada listed dozens of codes when announcing retailitory tariffs against the U.S. Eventually, the U.S. should publish a list of HS or HTS codes subject to tariffs. It's part of the process of implementing President Trump's trade policy.
Wall Street and industry analysts will pore over the codes, maybe even finding some loopholes. Various fasteners, hoses, valves, and pumps end up in cars, but they could be classified as just fasteners, hoses, valves, and pumps.
Honigman Partner and attorney Chauncey Mayfield helps auto companies and suppliers negotiate supply contracts, among many other things. He says not to underestimate company's ability to adapt to changing regulations.
For investors, its best to assume for now that most car parts imported to the U.S. will face a 25% tariff in May. That's about a month later than car imports because U.S. officials have to work out the details -- such as the right HS codes.
Suppliers will try to pass the increases to auto makers, Mayfield says. There is no guarantee that will be successful. Car companies will try to pass cost increases onto consumers. There is no guarantee that will be successful either.
Wall Street estimates the price of the average new car could rise as much as 10%. It's a big increase for consumers to swallow. Auto makers will have to mitigate that amount to keep customers in the showrooms.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
March 28, 2025 04:37 ET (08:37 GMT)
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