Moody’s said the new tariff threat would impact the entire global supply chain, denting corporate profits and the credit ratings of car makers, parts suppliers, dealers, and transportation companies.
“This would be negative for virtually everyone participating in the industry, whether you’re talking about U.S., European, Japanese or Korean manufacturers, part suppliers or retailers,” said Bruce Clark, Moody’s senior vice president, reports the Financial Post.
The president’s 25 percent tariff on Chinese goods, including automobiles, is expected to go into effect on July 6, while the U.S. government threatened to impose 20 percent tariffs on all European Union autos. Moody’s says this would “negatively impact” an industry that’s on track to produce around 96.7 million light vehicles this year
“Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” Trump tweeted on Friday, reported CNBC.
General Motors and Ford will be “notably vulnerable,” as both companies import a large number of vehicles into the U.S. from Canada and Mexico.
“Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the U.S. They would also probably need to subsidize sales to offset the tariffs for a time, with higher costs eventually passed onto the consumer,” writes Moody’s.
General Motors would be hit especially hard with the tariffs, seeing as 30 percent of its U.S. sales unit depends on imports from Canada and Mexico. Ford imports 20 percent of its sales from the two NAFTA neighbors. And speaking of NAFTA, it appears that arrangement is still up in the air.
“GM’s vulnerability to tariffs is greater than that of Ford’s,” the report said. “GM would likely face a more burdensome and costly challenge of having to shift significant amounts of Silverado and Sierra production back to the U.S. from Mexico and Canada.”
The Moody’s report makes it clear that should the tariffs go into effect, the whole global supply chain will be hit hard, and this will impact the economies and job force in countries around the globe.