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Trump’s Tariff and Domestic Vehicle Sales

-Lauren Fredericks and Charlie Radcliffe

After seeing Caroline and Cade’s post about the new steel tariff in the United States, we were interested to look at domestic motor vehicles sales since 2010. Since the tariff was just enacted, we cannot observe how the tariff has actually impacted sales. However, we can use the knowledge we gained about the negative influence that increased taxes have on demand to infer that the tariff will cause a further decline in domestic sales.

Since 2010, there has been a steady increase in motor vehicle sales. In fact, sales nearly doubled between 2010 and 2018 as consumers began making larger purchases when business stabilized after the Great Recession. However, in the graph below it is clear that there has been a decline in domestic motor vehicle sales since 2014, demonstrating the U.S.’ dwindling role as the world’s producer of motor vehicles.

As we mentioned, domestic sales increased after 2010 as American consumers (sort of) recovered from the Great Recession. We attribute the later decline in demand for domestic motor vehicles to the increase in demand for foreign motor vehicles. In fact, the United States imported the highest dollar value worth of cars during 2016: $173.3 billion.1 The tariff will make it more expensive for American car manufacturers to import steel with the intent of promoting domestic production of steel. However, it is possible that American car manufacturers will instead choose to make cars abroad where steel is cheaper and then export the cars back to the United States, effectively circumnavigating the tariff.This means that domestic manufacturers would have even more competition as some U.S. companies moved overseas.

The demand for domestic motor vehicles is already declining and the effects of the tariff on steel have yet to be realized. Assuming the tariff does not boost domestic steel production, the price of domestic motor vehicles will increase when steel becomes more expensive to import. This means American consumers' demand for foreign-made cars will increase because they are more affordable, driving total sales of motor vehicles up but sales of domestic vehicles down.

1Workman, Daniel. “Cars Imports by Country.” Worldstopexports, 5 Mar. 2018.

2Long, Heather. “Winners and Losers from Trump’s Tariffs.” Washington Post. 6 March 2018.

15 thoughts on “Trump’s Tariff and Domestic Vehicle Sales

  1. longa20

    It is interesting that the demand for foreign cars have increased recently, especially in the push to improve our nation through patriotism. If the steel is more expensive then this trend will continue, which will not be good for our vehicle producers. What do you think could improve this issue and increase the sales of American-made cars?

  2. spencerc20

    It seems surprising that the number of car sales has doubled since 2010 since logically it seems like people wouldn't be buying new cars as they were recovering from the Great Recession, but I guess it shows how people are feeling more and more stable. Hopefully, the damage the tariff would cause will be realized before it does too much damage to domestic vehicle manufacturers and we won't have a repeat of the bailouts of GM and other domestic manufacturers like we saw at the beginning of the Great Recession.

  3. warej20

    I enjoyed how you guys tied your blog post to a highly relevant issue in today’s society. There have been many speculations on the effect of the steel tariff and your post makes several interesting points. I do believe that if domestic steel prices increase then so will domestic automobile prices. I had not thought about automobile companies taking their business overseas. I am curious to see the effects as time progresses.

    1. alisonw20

      I too had not thought about automobile companies moving their businesses overseas. After some thought I have come to the conclusion that this will cause Americans to import automobiles, which will decrease our GDP. Do you think that the migration of automobile companies will have a noticeable change in the United States' GDP?

  4. the prof

    I think you put the wrong graph in – yours is sales of domestic AND foreign cars. It's also hard to eyeball because it is monthly sales and not seasonally adjusted versus the annual sales rate seasonally adjusted in the top graph. If I find the proper graph I'll replace yours - maybe you wanted to use domestic production?

  5. Jimmie Johnson III

    Wow this is a very cool post with some very interesting data. I had not thought about the US car manufacturers going oversees. that is a very interesting development of the tariff and I am curious to see how that plays out. I'm interested to research why this tariff was enacted. if we, as an intro level macro class looking at some FRED graphs, could find many negatives effect with this tariff (especially to domestic sales where it was intended to help), why was this even enacted?

  6. Cade Hornak

    Thank you for the shoutout! When one implements a tariff, the consumer usually ends up paying the difference of the tariff. However, with many countries who are now developing their own domestic steel industries (China is even selling its steel at a loss to create steel-worker jobs), the US is having an extremely difficult time producing and selling steel. I would not expect US consumers to circumnavigate the tariff by purchasing foreign goods since the tariff applies to steel imports like cars, but the demand for these cars is definitely increasing given the state of the world economy.

  7. moraifa19

    In your research, did you come across any reason for the sudden up-tick in consumption of cars? Additionally, do you have thoughts on the ways that the new steel tariff will influence the trend towards foreign cars that you mention in this blog post?

  8. bearupk20

    Interesting topic. Do you happen to know if any American car companies have moved any part of their production line across seas to take advantage of the lower prices? I understand that you mentioned if domestic companies moved abroad it would provide more competition for the companies who keep all their production in the country, but I would be interested to see how the decision to stay competitive with the foreign manufactured cars plays into the decision to move production over seas or not.

  9. myerse20

    Awesome topic- love that y'all looked at another group's blog post for inspiration. Like you mentioned, it is very obvious that the demand for domestic cars is declining. Is that because it's so much easier to get foreign cars now? Is it because foreign markets make more diversified cars? Some other factor(s)?

  10. johnsonjm20

    Cool post! it will be interesting to see what happens in the future. One of President's Trump's biggest platforms is based around domestic production so it will be interesting to see what the administration does policy wise to promote more domestic consumption. This could be putting tariff on foreign exports or tax cuts for the domestic companies to decrease prices. This steel bill has been an interesting topic among the class. While we have looked at the negatives, I wonder if someone will do a post on the positives it will bring.

  11. legarthb20

    It's very interesting to see this post as I am in the process of buying a new car. Does this take into account the used car market? And if so I wonder if it changes anything in that field. Additionally, could the increased demand of foreign cars be the mergers and sales of large car companies? Overall, great topic and great implementation!

  12. laytonr20

    Personally, I wonder how much people take into account whether a car is made by a domestic or foreign company before they purchase it. I would think that factors such as price, performance, gas mileage, and similar factors would be more important, but perhaps a car's nation of origin has a significant impact on those factors as well, I don't know for sure. Something I would certainly be interested in researching.

  13. Chris Surran

    I like that you tied your post to an issue that is relevant in today's society. I think that it is highly likely that automobiles will become more expensive in the coming years if the steel tariff ends up having a big impact on our economy. It will also be interesting to see what type of impact new innovations (self-driving cars, uber/lift) will have on consumer's desire to purchase vehicles.

  14. Katie Paton

    Having a steady increase in motor sales since 2010 is a good indicator of an expanding economy. It would be interesting to see if any more steel manufacturers have opened up in the US after the tariff was imposed. I wonder if companies would be able to take a bit of a financial hit in order to support domestic companies. It will be interesting to see if car manufacturers begin to look for substitutes for steel.

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