Why do US dealers prepare for the collapse?July 4, 2018
Why do millions of people dream of visiting the US? There you can lie on the wide beaches in Santa Monica or Florida, see places from the famous movies and TV shows, take a look at the Grand Canyon and the cactuses of Arizona, climb the Empire State Building. But there is another America. Baltimore, Detroit, and Cleveland were once large and wealthy industrial centers, but are now in crisis. And if you can still find work in them, then in a lot of small single-industry towns the population almost completely lives on benefits, hence poverty, crime, drugs. It’s all a rusty belt.
Rust this industrial “belt” did not go yesterday, and the process is natural. Progress brought automation of production and the need for labor weakened. At the same time, some of the proletarians who subsided on the fat left far away from the high factory pipes, but many remained. And then the enterprises themselves began to close down: manual labor in the country of victorious capitalism was too expensive.
The North American Free Trade Association (NAFTA), founded in 1994, complicated the life of the real sector. It presupposed duty-free trade between the United States, Canada and Mexico. And since the salary in the same car assembly plant in Mexico even today is several times lower than the similar rate in the US, car companies began to move the plants to the south. In general, the “rusty belt” continued to rust, while cars to the country were imported almost free of charge (with a duty of 2.5%), and from Canada and Mexico – absolutely free. Meanwhile, the same China takes for import 25%, and Europe – 10%. And this is unfair.
“This is unfair,” – Trump said, and was elected to the presidency of the United States, almost with the unanimous support of all “rusty” residents.
In this sense, the attempt to balance duties on cars and raise them 10 times (from 2.5 to 25%) is Trump’s performance of pre-election promises. Some of his promises he has already implemented, for example, raised duties on steel and aluminum (by 25 and 10% respectively), and a part so far could not – it is about the abolition of the federal subsidy for the purchase of an electric car, which currently stands at $ 7,500 and applies to the first 200,000 electric vehicles sold by each manufacturer separately. Play with taxes without consulting allows Trump the “Trade Expansion Act”, adopted in 1962, and, more precisely, its paragraph 232, which appeals to “considerations of national security.”
Do you import many cars from the US? Excluding the Mexican factor, it turns out that of the 17.3 million sold in the US last year, about 1.7 million came from Europe, 1.15 million from Japan, and about 0.6 million from South Korea. And now, all of them should rise in price. How much? Of course, not by 25%, because the price from which the import duty is taken is less than the price in the showroom. Experts of the international consulting agency Trade Partnership Worldwide calculated that if an American bought an import car for $ 30,000, then after the introduction of the duty, the price will increase to $ 36,400.
What does this mean for the market? It turns out that in the opinion of many participants and experts this could turn into almost a collapse, although the share of “non-Mexican” imports is quite small. Automotive News writes about the possible fall of the new car market by 2 million units. a year and quotes the words of Michael Jackson, president of the largest dealer of the country AutoNation, which sells cars of two dozen brands in the volume of more than 300 thousand pieces. per year: “It’s like a nuclear war. The destruction will be so great that there is no need to build an air-raid shelter … ”
In short, a total of 9600 car dealerships are expected to be closed and 557,000 people will be laid off. Meanwhile, sales will fall and on cars of local assembly. So, in Toyota already reported that the US-built Toyota Camry sedan, which only in the first quarter of 2018 acquired more than 90 thousand Americans will rise in price by an average of $ 1800. The base Toyota Camry is $ 23,645, so the increase will be about 7.5%. There will be other losses. So, in the company Jaguar Land Rover, which at one time planned to build a plant in the US, but eventually chose Slovakia, has already been informed that due to increased duties, US dealers will not be able to release about $ 1.3 billion from previously planned funds for modernization and development.
In general, where history will turn, it is not yet clear. It may well be that Trump will go on a compromise option, after all, in Europe, for American cars, not 25%, but only 10%. As for China, then, just as from July 1, he reduced the rate on imported models from 25% to 15%, simultaneously reducing the duty and the import of spare parts – from 10 to 6%. However, Xinhua News Agency has already reported that if, starting July 6, Trump increases the duty, China will return to the previous level of taxation on the same day!
By the way, another important Trump campaign promise is to deal with NAFTA. The chief Republican wants to inflate the tax on Mexican cars to a very sky-high 35% and return all the leaked production from the country.