In his recent Detroit roundtable meeting with auto industry leaders, President Donald Trump pledged to make the U.S. the “car capital of the world again.” He wants to see new modern auto plants built in Michigan and throughout the Midwest.
To help prime the pump for the industry, the president pledged that he would reopen a review of the unreasonable Obama-era fuel economy mandates. This is a welcome first step, but if Trump truly wants to instill a “buy American, hire American” vision, he must abandon the Border Adjustment Tax being pushed by his own party in the House of Representatives.
If passed, the BAT would impose a 20 percent tax on all goods imported in the U.S., including many of the parts that go into today’s U.S. auto fleet. By some estimates this could increase the cost of a new vehicle as much as $2,500. Cody Lusk, chairman of the American International Automobile Dealers Association, said of the BAT, “It’s a recipe for disaster. It’s a tax on consumers, and it means the average car payment goes up by almost $100 a month.”
As an importer of foreign-made autos, my business will be hit particularly hard as every vehicle on my lot will be subject to the BAT. I simply cannot absorb a 20 percent hit on my bottom line, so unfortunately, I will need to raise prices. That’s bad news for my potential customers who are already going to be faced with higher costs from the BAT on everyday necessities including food, clothing and medicine. The average family will spend roughly $1,700 more per year on these basics. Additionally, gas prices could jump by 35 cents per gallon.
So, while incomes have remained stagnant, many new-car buyers are already stretched to the limit relying on seven- and even eight-year loans to finance their vehicles. These are all limiting factors that will push the purchase of a new car further out of reach for middle class consumers. If I can’t move the vehicles on my lot, that clearly impacts our business.
National Automobile Dealers Association President Peter Welch recently warned that further cost increases to vehicles will “turn the average car or truck into a luxury good affordable only to America’s top wage earners.” In a CleanTechnica article, auto analyst Alan Baum notes that the BAT “could shrink the automotive sector by 6.5 percent or 1.1 million vehicles.”
This pain isn’t limited to businesses like mine in the auto industry. Retail is also a major industry in our state, providing more than 870,000 jobs to Michigan workers and are responsible for 20 percent of Michigan’s total economic activity. They will be equally punished under the BAT.
While American companies and consumers will be hurting, supporters of the BAT, large multinational corporations that export much of their products to overseas markets, will continue to gain advantages and make billions in profits each year. A steep border tax in the U.S. will likely see retaliation, too. Other countries are certain to impose their own taxes or other countervailing duties on our exports, making them less attractive in the global economy. Many are speculating that the border tax could tip the U.S. back into recession.
Trump won the state of Michigan in the election on the pledge that he will revive American manufacturing and jobs. He doubled down on that promise this week by declaring that “The assault on the American auto industry is over.” He should be applauded for reviewing the auto emissions standards that have placed a major burden on the auto industry. But if he really wants to remove all the barriers to the U.S. auto industry, he will need to stand up to his party leaders in Congress and kill the border tax now.
George Sharpe Jr. is general manager of the Sharpe Collection of Premium Automobiles in Grand Rapids.