As Mazda continues building its first factory in the U.S., it began to sound like the automaker was having second thoughts. Shortly after Toyota came out in clear opposition to Trump’s potential tariffs on imported vehicles, Mazda released a statement in even plainer language.
“A tariff is a tax and it will be paid by American consumers,” the automaker said. “It will significantly increase the cost of every new vehicle sold in America.”
Besides the impact on consumers, automakers have warned about the impact on U.S. employment. It’s a fairly easy case to make.
The direct and indirect costs of auto tariffs
If imported cars and trucks get anything like a 20-25% tax at the border, manufacturers have few options. They could stop selling the vehicles in America or attempt to source more parts in the U.S..
However, given the amount of planning it takes to plan and deliver an automobile efficiently in 2018, such changes require more expenses than they’re worth.
The solution? Most automakers would simply raise their prices.
That’s exactly what Toyota said it would do with the Camry, America’s best-selling car. The midsize sedan would cost at least $1,800 more if a tariff were in place, the automaker said. Toyota RAV4, one of the top-five vehicles on the U.S. sales charts, would also get a price increase.
Mazda, which is joining Toyota in building a manufacturing plant in Alabama, also mentioned the impact on its U.S. employees.
How Mazda’s U.S. employees would be hit
Between dealerships and administrative staff, Mazda employs 32,000 people in America. Once the joint Toyota-Mazda plant opens in Huntsville, another 4,000 U.S. jobs would enter the picture.
However, those numbers would be downgraded if tariffs were in effect. While Alabama Senator Doug Jones said he doubted Mazda would cancel its plans for the plant, he said the uncertainty would have an impact.
Toyota’s U.S. executives reiterated that point in June, as did the Global Automakers group that represents foreign manufacturers. In that lobbying operation’s estimate, 195,000 U.S. jobs would go poof following Trump administration tariffs.
When foreign countries retaliate
While Global Automakers said hundreds of thousands of jobs would be lost, the group was not counting the workforce cuts that would come as a result of retaliation by foreign countries. In that case, the group said the number would be three times as high (about 600,000 U.S. jobs).
The case of Harley-Davidson offers an example of what would happen. Following the EU’s 31% tariff on Harley imports — a response to Trump’s steel tariffs — the automaker abruptly said it was moving production out of America.
Following the logic is simple. Harley could either
- a) raise prices by thousands, risking its own place in the market, or
- b) sidestep the tariff by cutting U.S. production
When companies are concerned primarily about the bottom line (they all are), posturing by the Trump administration does not factor into the decision. Harley decided on the plan that would mean the most for its bottom line, and EU officials considered it a win in the trade war.
Auto consumers are the same. If a vehicle suddenly costs $3,000 more, they wouldn’t buy it. Once that company stops selling as many cars, it stops needing the same number of employees.
Soon enough, they lay off the workers. That’s how “America First” backfires on Americans so quickly.