-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.2 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. http://www.worldstopexports.com/cars-imports-by-country/.
2Long, Heather. “Winners and Losers from Trump’s Tariffs.” Washington Post. 6 March 2018.https://www.washingtonpost.com/news/wonk/wp/2018/03/06/winners-and-losers-from-trumps-tariffs/?utm_term=.ccd17c4858cd