Imports and the Location of Vehicle Production within the United States

Changes in tariffs or foreign production costs can alter the geographic concentration of motor vehicle production within the United States. I simulate the magnitude of these economic effects using a sub-national model of the motor vehicle industry that combines data on vehicle production at the level of individual plants and vehicle models with data on U.S. sales, multi-product ownership, and pricing. A new 25% tariff on U.S. imports from outside of North America would reduce vehicle imports by 73.9%, increase average prices of vehicles in the United States by 5.0%, and increase variable profits from domestic production by 5.2%. The resulting increase in North American vehicle production would be very unevenly distributed, with the largest percent increases in California, Tennessee, Georgia, and Alabama, moderate percent changes in Mexico and Canada, and the smallest percent increases in Missouri, Michigan, and Texas.