Why New Auto Tariffs Won’t Increase Research and Development

The Daily Signal | 11/8/2019 | Staff
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Junsoo Kweon is the Asan Fellow in the Asian Studies Center at The Heritage Foundation.

Tori Whiting is the Jay Van Andel trade economist in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Days - Trump - Administration - Tariffs - Automobile

In just a few days, the Trump administration could impose new tariffs on automobile and auto-parts imports.

The administration has erroneously claimed that tariffs are a necessary national security measure, supposedly needed to safeguard the American automobile market from foreign competitors and to create space for U.S. companies to undertake additional research and development.

R - D - Budgets - Companies - Concern

However, even if the R&D budgets of American companies were the proper concern of the government—which they aren’t—tariffs are likely to backfire.

According to the Center for Automotive Research, “Any new barriers to trade will have a significant impact on the U.S. automotive industry, consumer prices, and U.S. sales, employment, and economic output.”

Starters - Trump - Administration - Percent - Tariff

For starters, if the Trump administration were to impose a 25 percent tariff on automobile products, the price of a new car could increase by as much as $2,750 and up to 366,900 U.S. jobs could be lost.

Those increased costs would strain capital in the auto industry. The Congressional Budget Office observed that “the tariffs [would] raise domestic prices, thereby reducing the purchasing power of domestic consumers and increasing the cost of business investment.”

Words - Car - Prices - Companies - Cars

In other words, higher car prices would result in the automotive companies selling fewer cars, which would mean lower revenues and less capital freed up for R&D.

Investment in automotive R&D is already very strong in the U.S. Traditionally “domestic” manufacturers (such as Ford and General Motors) invested more than $34 billion in R&D between 2013 and 2017. Meanwhile “foreign” manufacturers invested only $20 billion during that same...
(Excerpt) Read more at: The Daily Signal
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