Our View: Auto supply chains in Trump tariffs' crossfire

If the COVID-19 pandemic taught us anything it's that our supply chains are resilient. Even the great, big, complex and convoluted ones like those in the automotive industry.

Automotive supply chains now face another major threat, this time in the form of Trump tariffs, which—of course—have resulted in retaliatory tariffs. And there's a lot at stake for the industry at large.

Automotive News reports that the U.S. imported $474 billion worth of automotive products last year, including $220 billion worth of passenger vehicles.

That's a lot of product subjected to one tariff after another.

Because that's the confounding part about Trump's approach—all of the tariffs stack on one another. And for an industry that has parts crossing North American borders several times before ending up at their final destinations, face-value 25-percent tariffs could easily become 60-percent tariffs or more, once all the assessments are factored in.

What's most concerning, though, is the ability of suppliers—most especially the smallest suppliers—to manage the tariff costs.

Kristin Dziczek, a policy advisor with the Federal Reserve Bank of Chicago, said during the recent MEMA Aftermarket Suppliers Vision Conference that her "main concern is for suppliers, especially smaller suppliers… (because) that is where employment is, it's where a lot of economic activity is."

But there are other questions, too, like: Who is most likely to bear the brunt of the costs incurred by tariffs? Inevitably, it will fall to consumers.

Trump's tariffs will result in steep price hikes for consumers who already are reeling from inflation. Moreover, those tariffs are hitting an industry that was battling major affordability issues. Before the tariffs were introduced, industry experts were raising concerns about the costs of vehicles coming out of the COVID-19 pandemic, saying that middle- and working-class families were being priced out of used vehicles, let alone new ones.

Trump's tariffs only compound that problem, so much so that not even U.S.-assembled vehicles are immune.

The Anderson Economic Group estimates that, once factored in, the new tariffs will raise the price of vehicles significantly. U.S.-made vehicles—think: Honda Civics, Chevrolet Malibus and Ford Explorers—could see price hikes between $2,500 and $4,500.

Full-size SUVs and luxury vehicles made in North America could cost between $10,000 and $12,000 more, while European-made sedans, SUVs and sports cars could rise by $20,000 or more.

What the industry really needs most from Trump is something that he flat-out appears unwilling to give: Time and clarity.

"You see those stacks of tariffs of 65, 85 percent—nobody has margins like that. The system cannot handle this in a rapid-fire way," Dziczek said. "And while having more domestically produced parts and cars is an admirable goal, it takes time, and this adjustment will be difficult."

The industry is capable of adjusting, she said, it just can't do that overnight.