- President Donald Trump’s trade war could destroy 100,000 American jobs in 2019 if he places a tariff of Europe’s automotive sector, an Oxford Economics report concluded.
- Oxford Economics says Trump’s tariffs would shave off 0.1 percentage points from US gross domestic product next year in a worst-case scenario.
- Trump has threatened to place a 20% tariff on European autos but has not yet followed through.
The trade conflict sparked by President Donald Trump could cause 100,000 Americans to lose their jobs next year, a new report argues.
The report, published by the research house Oxford Economics, says in a worst-case scenario Trump’s tariffs would knock 0.1 percentage points off US gross domestic product in 2019 and cost a significant number of jobs. This scenario would include substantial tariffs on the European automotive sector – something Trump has threatened but so far has not enacted.
Oxford argues that consumers would decrease spending if imported cars become more expensive, directly affecting the automotive sector and costing jobs.
Here’s the key paragraph from Gregory Daco and Jake McRobie:
“Higher prices for imported cars and parts would filter through to producers and consumers, and restrain outlays and investment. While the increased price on foreign vehicles would cause some substitution effect, capacity utilization in the automotive sector is near 80% – around its long-term historical level – indicating supply would likely be slow to respond. Further, higher prices for car parts would also weigh on domestic output via foreign multinationals (like Volkswagen or BMW) based in the US.”
In recent months, Trump has sparked a global-trade conflict by placing or threatening punitive tariffs on hundreds of billions of dollars’ worth of goods from China, Mexico, Canada, and the European Union. He has done with the hope of making American-made goods more appealing to consumers.
Trump recently turned his attention to the automotive sector, focusing on European manufacturers. “Based on the Tariffs and Trade Barriers long placed on the US and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US,” Trump tweeted last week. “Build them here!”
The US imported over $US43 billion worth of vehicles for people transportation in 2017.
Should those tariffs materialise, Oxford’s economists think the direct impacts would be dire and the secondary impacts could be even more severe.
“Given the large supply chain multipliers in the automotive sector, and the knock-on effects from increased business uncertainty, the total shock to the economy could be twice as large,” the report says.
Multipliers in the sector mean that every dollar of activity creates $US2 more of “induced activity through domestic and foreign supply chains.” Effectively, the automotive sector creates twice as much spending as it spends, as the chart below shows:
“The total economic shock to the economy could easily be twice as large as the direct shock,” the report continues.
“Further, increased business uncertainty and reduced confidence would slow the pace of investment while financial volatility would constrain household spending.”
Oxford’s estimate of job losses is actually less severe than some research, with a report from the Peterson Institute for International Economics saying a 25% tariff on imported autos to the US would result in the loss of 195,000 US auto workers’ jobs.
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