The American Auto Industry Faces Additional Headwinds as Trump Announces Copper Tariffs

Last week, Trump announced that a 50% tariff would be imposed on copper imports from August 1st. This announcement raised concerns, particularly among auto manufacturers and suppliers, as the tariffs would make it harder for them to shoulder the rising costs and taxes. 

In the United States, copper is primarily used in industrial machinery, construction, electrical equipment, and vehicle manufacturing. The red metal is a key component in wiring and motors, with roughly 75% of copper consumed in the country going towards electrical applications like telecommunications, power generation and transmission. 

Given that the American market greatly relies on the red metal as well as other metals like steel and aluminum, users have been clamoring to purchase more metal before the tariff goes into effect, prompting an increase in prices. The extra costs are, in turn, heightening the financial strain on parts suppliers and auto manufacturers, which may prompt them to pass on some of the costs to consumers. 

Just recently, Toyota and Ford announced that they’d be increasing their prices to help offset the extra costs brought on by tariffs. Porsche also revealed that these Trump-induced tariffs would cost the company about $351 million, just for the months of April and May, which points to significantly reduced profits for the company. 

Suppliers to auto manufacturers have also begun asking their consumers to pay more for their products so they can meet the additional costs. 

An executive officer at Marubeni, Takashi Imamura, expects that the U.S. government needs to eliminate and/or reduce tariffs to reduce the commercial friction building up at the moment. A lead analyst at Benchmark Mineral Intelligence, Daan de Jonge, reveals that tariffs have increased costs of producing vehicles by about 9%. Prior to the introduction of these tariffs, copper, aluminum and steel accounted for roughly 5% of these costs in the U.S. 

Estimates from Benchmark Mineral and Cox Automotive detailing how much the current and planned tariffs will cost auto manufacturers show that for cars made in America, the average minimum extra costs due to tariffs is roughly $1700 per car. For cars imported from Mexico or Canada, this cost rises to $3500 per car while for cars imported from other countries, the costs surge to about $5700 per car. 

Given that America’s auto industry has low profit margins, automakers already covering operating and production costs will feel the pinch as the extra costs will probably eat into their profits. This may in turn impact production decisions, jobs, or even investments in new technology. 

For copper exploration firms like Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF), one key lesson to pick is that it helps to plan on a diversified market so that shocks in one market don’t have an outsized impact on the firm. 

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