The implications of US vehicle tariffs

In this Update, we answer several key questions about how the announced 25% tariffs on US imports of autos and parts might affect the global economy and the US itself. Mexico, Slovakia and Korea are most exposed with up to 1.6% of GDP at risk. But the risks are mitigated by certain exemptions and by the likelihood that the tariffs will not wipe out their cost advantage entirely. There is scope for US auto production to rise, but not by anywhere near enough to replace its imports in the near term. And the inflationary effects of the tariffs threaten to offset any positives for the US economy.