Study: Border tax could boost car prices by up to $17,000

February 7, 2017

As a businessman, it shouldn't be too surprising that much of Donald Trump's attention during his first two-and-a-half weeks in office has been focused on U.S. business policies--things like trade deficits, free-trade agreements, and, of course, border taxes.

Although the details of such a tax plan have yet to be worked out, analysts have put together some preliminary estimates of how it might affect America's auto industry.

Long story short: not so good.

Price hikes

Michigan-based Baum & Associates says that a border tax--one that applies not only to vehicles imported from factories abroad but also to foreign-made vehicle parts--could increase sticker prices by as much as $17,000.

To be fair, that's an extreme scenario that affects just one automaker, Jaguar Land Rover, which imports all of its vehicles sold in the U.S.

Most increases would be smaller, but still very substantial. Volvo, for example, would need to up its prices by more than $7,500 to accommodate a border tax. Volkswagen wouldn't be far behind, with increases of around $6,800. 

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Even Detroit brands would see price upticks: Ford's would climb $285, and General Motors' would rise by nearly $1,000. Fiat Chrysler would have to boost prices by closer to $2,000.

(Interestingly, Honda prices would climb slightly less than FCA's, around $1,500. Then again, we've known for a while that Honda was upping its U.S. manufacturing game.)

The only automaker that might not have to increase prices--according to Baum & Associates, anyway--would be Tesla, which builds all of its vehicles in the U.S.

Silver lining?

There is an upside to the Trump team's proposed border tax: it could force automakers to concentrate more of their manufacturing here in the U.S., which could translate into 50,000 new auto sector jobs and boost production capacity by 1 million vehicles. 

However, it's not entirely certain that those jobs would stick around or that such a dramatic increase in capacity would be needed. A report from UBS Securities says that the higher car prices would slash U.S. auto sales by about 2 million vehicles per year. That would more than erase the increased capacity and almost certainly result in layoffs.

Some of those losses might be stemmed by exports, which wouldn't be taxed under the proposed plan. However, if other countries play a game of tit-for-tat and implement their own border taxes, U.S. exports would become less competitive in foreign markets. Whether that might result in a net loss or net gain for sales is anyone's guess.

In the end, though, all of this may come to nothing. True, a border tax bill could make it through the GOP-led House of Representatives pretty easily. Whether it could manage the same feat in the much more evenly split Senate seems doubtful.

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