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Toyota: US auto tariffs would raise vehicle costs, slow global economy

A trade deal between the U.S. and Japan that sidesteps potential global auto tariffs could help companies avoid a spike in vehicle costs and a potential global economic slowdown, executives from Toyota Motor Corp.'s North American division said.

The automaker said it is well positioned to deal with such tariffs, even as the auto industry at large continues to grapple with higher costs from steel and aluminum tariffs imposed in 2018. However, consumers will still face higher costs if tariffs materialize and trade wars — or even the discussion of them — causes the economy to pause as companies decide which direction to take, said Jack Hollis, Toyota Motor North America group vice president and general manager.

"Everyone wants to take a cautious approach," he said during a Sept. 26 interview at Toyota's U.S. headquarters outside of Dallas. "So you slow global economies."

U.S. President Donald Trump and Japan's Prime Minister Shinzo Abe signed a partial trade deal Sept. 25 to reduce tariffs on a variety of goods, but autos were not included in that. Toyota relies heavily on Japan for importing vehicles and parts to the U.S.

Trump has until November to decide whether tariffs, which could be about 25%, should be imposed on vehicles and auto parts imported to the U.S. on a basis of national security as the result of a Commerce Department Section 232 investigation.

"The faster they come to a solution and the faster they can protect the end consumer, the faster we get to move on and get to be less cautious," Hollis said.

Norm Bafunno, Toyota Motor North America's senior vice president of unit manufacturing and engineering, said tariffs make the U.S. less competitive as companies face higher costs.

"I think there's obviously a lot of strategy, a lot of people are thinking about what to do, how to apply it, how to unwind it at some point," he said.

With the proposed auto tariffs, Hollis said it is hard to believe Toyota could be considered a national security threat when the automaker is "investing more in this country than our domestic counterparts."

Toyota will invest $13 billion in U.S. manufacturing through 2021, with about $6 billion invested in domestic plants so far.

SNL Image

Tariffs are essentially a "consumer tax" on vehicles, according to Toyota.

Credit: Toyota

If the U.S. wants to implement the 232 auto tariffs, "Toyota is well prepared in the marketplace to compete in the next new numbers," Hollis said. "The question is, is the consumer?"

If tariffs are imposed, Toyota said the cost of a Camry sedan would increase about $1,800, the Tundra pickup truck would increase $2,800 and the Sienna minivan about $3,000, assuming approximately 30% of the parts are imported.

"There is no 100% American car," Hollis said.

The Center for Automotive Research forecast that in a worst-case policy scenario, Section 232 auto tariffs, excluding tariffs on Canada, Mexico and South Korea, would be responsible for more than 90% of total economic harm in the U.S. In this scenario, U.S. light-duty vehicle prices would increase on average by $2,750 with sales dropping by 1.32 million units per year.

"I really hope that no tariffs come into play," he said. "The more there is free trade, the better for everybody. The more it doesn't cost you allows for more to happen. We would just like to see a decision made."

Tariffs already in place

The tariffs on steel and aluminum imports into the U.S. that Trump imposed in 2018 "affected us and every manufacturer," Hollis said.

"If you look at the entire industry and pricing, every model would show pricing has gone up almost in direct relation to that," he said.

Toyota sources about 90% of its steel and aluminum from the U.S., with the rest coming from overseas. While executives have said steel costs for Toyota have risen, the company declined to share specific figures on the impacts.

"We can look now and see over the last bit of time those prices have gone up," Bafunno said, referring to steel and aluminum prices with tariffs ranging from 15% to 30% depending on the type. "Ultimately, our consumers will see a little bit of that."

The dilemma with any tariffs is figuring out who will absorb the cost, whether it is the company, consumers or both, he said.