As the political situation overseas is heating up, it’s becoming clear that a trade war is looming. President Trump’s recent tariffs have accelerated the process, sparking discord and ensuring that a trade war will occur despite the best wishes of the American people – and American automakers.
Trade wars aren’t active military confrontations, but rather countries facing off using tariffs and economic policies to destabilize each other’s economies. This is a targeted form of warfare designed to destabilize a certain industry. And for Americans planning on buying a new car in the next few years, this trade war could spark serious consequences.
Politics Could Affect the U.S. Auto Industry
It might seem like politics are separate from the prices of private goods, but the reality of a trade war is that it could increase manufacturing costs at a scale unseen in recent decades. Tariffs placed upon the United States by China and other countries overseas, like the 25 percent tariff on steel and 10 percent tariff on aluminum already in place, will cause rising prices across the board in the auto industry.
Steel and aluminum are among the most common metals used in automotive manufacturing.
In 2007, ETF reports that the average car held 2,400 pounds of steel. When you consider the 25% tariff currently imposed on overseas manufacturing and consider the same applied to the U.S., it becomes evident that a trade war could increase the cost of raw metals by staggering proportions. General Motors has been known to buy upwards of seven million pounds of steel a year, and their competitors do the same.
Although car companies might be able to find these materials domestically, the truth is that the far more likely result is manufacturer’s increased cost will be passed on to consumers.
What a Trade War Means for Automakers
Auto companies have an obligation to their shareholders and to their employees to make a profit – and stockholders will want to sell their investments when tariffs are imposed, which can be dangerous for the entire market.
To prevent profit loss, automotive companies will increase prices at the consumer level. For many Americans, buying domestic vehicles is a point of pride, and auto companies know they can pass their costs to the buying public without risking anything. New car buyers will see higher sticker prices and will have no choice but to pay them.
How This Will Affect New Car Shoppers
As the political situation heats up and China prepares to levee economic tactics against the United States, new cars are going to become expensive enough that previously affordable starter cars will put a substantial dent in your bank account.
Interestingly, this could actually provide a boon – at first – for shoppers looking for used vehicles. When new cars increase in price, demand will rise for used cars. These used cars may maintain their current prices at first, but as the market turns, prices will rise.
If this sounds like a problem, that’s because it is. The purpose of a trade war is to destabilize the smaller everyday operations of a country’s populace. As the economy declines, it’s the people who suffer. The United States is as susceptible to trade wars as any other country. And, now that China is an equally competent economy, you should act now before the trade war begins to make a serious impact on auto pricing.
Pay Less by Shopping Now
The truth is, no one knows what’s going to happen in the upcoming trade war. But with the past as a guide and the metals involved crucial to auto manufacturing, you can be sure prices are going to increase. That’s why right now is the best time to buy new cars and trucks.
The coming weeks and months could bring tariffs beyond anything the American people have dealt with before. Even if you’re buying a car you think you might sell in a few years, remember that increased prices aren’t going to go away. The value of automobiles is only going to rise, and if you’re an owner, that’s pure profit in your pocket.
Like anything, it’s always a good idea to be aware of the latest research. We recommend comparing at least 3 or 4 options before making a final decision. Doing a search online is typically the quickest, most thorough way to discover all the pros and cons you need to keep in mind.
