The growth in global auto sales, to date in 2018, is still going strong — but that may not be the case if the U.S. continues to impose a protectionist barrier (particularly in the form of auto import tariffs), according to Scotiabank Economist Juan Manuel Herrera.
In a July 2018 Global Auto Report, Herrera wrote that “growth in sales thus far in 2018 has, as expected, been led by strong gains in developing economies while a number of advanced economies have reached sales plateaux, albeit near record levels.” He adds that, “The global economy remains solid amid a mutually reinforcing expansion brought about by rising trade flows across the world. An escalation of U.S. protectionism, however, threatens to slow the pace of global growth.”
As it stands, car sales in both the U.S. and Canada remain just below record-high sales levels after experiencing a year-on-year decline of 1.7 per cent in June in Canada, and a strong 4.7 per cent YOY expansion in the U.S. during the same period.
Central Canada experienced a slight increase in purchases, which has been offset by a decline in sales in Western and Atlantic Canada so far in 2018. Vehicle sales have decreased in each of the Atlantic Provinces year-to-date, resulting in a regional decline of 7.7 per cent YOY.
In Western Canada, purchases dropped by 1.1 per cent YOY and YTD, following four back-to-back months of YOY declines.
If we were to add global tariffs on U.S. auto imports into the mix, this would likely result in “tit-for-tat retaliatory measures” by the affected nations. In fact, if the U.S. government were to impose a 25 per cent tax on Canadian-made vehicles and the Canadian government were to respond with similar countermeasures, the situation would likely cost Canada 100,000 jobs and add up to $9,000 to the price of a new vehicle, according to July 2018 article from CBC. This would in turn affect vehicle sales, and the overall situation would profoundly impact the Canadian economy.
The Scotiabank report also notes that “If the U.S. imposes tariffs on all countries, but maintains duty-free trade under NAFTA (North American Free Trade Agreement), the impact on the Detroit Three automakers would be relatively subdued since non-NAFTA imports make up approximately 5 per cent of their combined sales in the U.S.” But, an import tariff “imposed on foreign autos from Canada and Mexico would impact a much larger swath of vehicles sold in the U.S., and would seriously hurt the Detroit Three firms.”
You can download the full report here.
