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Trump's costly auto tariffs

Jun 30, 2018

Credit Daniel Howes / Detroit News

The automakers found their proverbial spines this week. After months of President Donald Trump’s haranguing about tariffs on finished vehicles and auto parts, the industry presented the country with a bill. Realizing the president’s protectionist dream would not come cheaply. The average cost of a vehicle would increase $5,800, says the Alliance of Automobile Manufacturers.

Within three years, nearly 200,000 American jobs would be lost, many of them in the industrial heartland that helped deliver Trump to the Oval Office. And if the country’s trading partners retaliate – which you can count on – the job losses could balloon to 624,000.

Tougher U.S. content rules, tariffs on imports, and levies on exports would raise costs, cut production, and decrease profit margins. In the real world, that would force employers to cut jobs to reduce spending. And that would turn the industry's virtuous circle into a vicious cycle.

That’s just the beginning. Trump’s tariffs would hit as sales are slowing and competitive pressure is increasing to invest heavily in mobility and autonomy. Fewer sales and smaller profit margins would mean lower cash flow, and less cash would mean less capital to invest in developing technologies for next- generation Auto 2.0.

And it would undercut the traditional industry’s ability to compete with Silicon Valley and Chinese players often backed by the central government in Beijing.

Hello? Is there anyone home at the office of the U.S. Trade Representative? The president and his trade team routinely assure that all will be fine on the far side of this escalating tit-for-tat. How? They don’t say. Because they don’t know.

Now, the president’s supporters tell me not to worry. They say he’s redressing historic wrongs. They say he’s staking out a maximalist position he has no intention of actually taking. They also vest far more credence in the administration’s off-hand diagnosis of the problem and its proposed solutions than the people inside the industry who do the work for a living. But here’s the problem, folks.

The auto industry is making its case with facts. With an understanding of how capital allocation and production decisions are made. Without the emotionally charged bullying and name-calling coming from Team Trump. The guy who owes his presidency to the industrial Midwest would be wise to consider the economic consequences – and political implications for the midterms and beyond – of his tariff obsession rooted in a bygone era. The president seems convinced the foreigners will fold because “he, alone” is negotiating, because America always wins, and because business will salute and fall in line.

Don’t bet on it. The likes of General Motors, Ford and Toyota do not work for the president of the United States, whoever he is. If Trump’s trade team can justify slapping 25% tariffs on imported vehicles, expect automakers to make cuts and to source more vehicles from lower-cost foreign markets to offset rising costs back home.

Trump came to office touting himself as the auto industry’s best friend in a generation. But his friendliness has its limits – and so does his understanding of a business that is far more globally interconnected than ever before. 

Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.