Howes: Import tariffs imperil auto jobs, profitability, future investment
The auto industry’s long-time-coming opposition to President Donald Trump’s 25-percent tariff on imported vehicles boils down to two words: no thanks.
In a coordinated blitz, the two trade groups together representing 23 automakers operating in the United States said Wednesday the proposed levies would cost jobs, raise prices for consumers, invite retaliation from North American and European trading partners, and negate the benefits of tax reform, the administration’s singular domestic achievement.
“Domestic and international automakers build autos in 45 facilities in 14 states and support more than seven million jobs across the U.S.,” the Alliance of Automobile Manufacturers said in a statement. It added that “the economic security of the auto industry” and the country could “be strengthened” without invoking national security concerns to impose tariffs under Section 232 of the Trade Expansion Act of 1962.
The automakers instead advocate modernizing the North American Free-Trade Agreement; concluding a trade deal with the European Union “to address trade barriers on both sides of the Atlantic”; and seeking opportunities to open new foreign markets for American auto exports.
Most of all, the automakers are making their case with facts, a sharp contrast to the emotionally charged bullying and name-calling coming from Team Trump. The president delivered to the White House by the industrial heartland would be wise to consider the economic consequences — and political implications for the midterms and beyond — of his tariff obsession rooted in another era.
“There is no national security justification for taxing imports of vehicles and parts or discriminating between global companies headquartered here or in allied countries," John Bozzella, CEO of Global Automakers, said in a statement. "The 130,000 Americans who work directly for international automakers are no less patriotic or willing to serve their country in a time of crisis than any other American."
He's right, especially because the operations of foreign automakers are located predominantly in Trump Country, the red states of the southeast. How tariffs would enhance the electoral prospects of congressional Republicans in the November mid-terms, or the president's re-election bid two years later, is difficult to discern.
Tariffs of 25 percent on imported vehicles would increase vehicle prices an average of $5,800, the Auto Alliance says, and hit American consumers with a tax of nearly $45 billion they otherwise would not be forced to pay. In Michigan alone, the alliance says, the tariff would cost Michigan consumers another $1.6 billion.
Citing a study by the Peterson Institute for International Economics, the alliance says as many as 195,000 American workers could lose their jobs within three years as automakers are forced to cut production. And if foreign countries retaliate with their own tariffs, the American job losses could balloon to as much as 624,000.
Tougher U.S. content rules, coupled with tariffs on imports and exports to other countries, would raise costs, cut production and decrease profit margins. In the real world, that would force employers cut jobs to reduce spending, turning the industry's virtuous circle into a vicious cycle.
"The calculus is simple," the Alliance says in its comments on the "National Security Investigation" of imported cars, SUVs, light trucks and parts. "Tariffs will lead to increased producer costs, increased producer costs will lead to increased vehicle costs, increased vehicle costs will lead to fewer sales and less tax receipts, fewer sales will lead to fewer jobs, and those fewer jobs will significantly impact many communities and families across the country."
That's just the beginning. The tariffs would come as industry sales show increasing signs of slowing amid competitive pressure to increase investment in the mobility, autonomy and electrification spaces of Auto 2.0. Costlier products that reduce sales and margins mean automakers domestic and foreign would have less cash to spend on the race with Silicon Valley heavyweights and Chinese players often backed by their central government.
Hello? Anyone home in the office of the U.S. Trade Representative? The president and his trade team routinely reassure that all will be fine on the far side of this escalating tit-for-tat. How they do not say — because, it's becoming increasingly clear, they do not know.
Implicit in their one-upsmanship is the assumption that the Canadians and the Mexicans, the Europeans and the Chinese, will fold because the Art of the Deal himself is negotiating, because Americans always win and because business will salute and fall into line.
Don't bet on it. General Motors Co. is planning to build its new Chevrolet Blazer in Mexico. Ford Motor Co. will source its next-generation Focus compact for American showrooms out of China. And the industry more generally is managing more tightly its return on invested capital.
If the president's trade team somehow concocts justification to slap 25-percent tariffs on imports (and includes metal made in NAFTA partners Canada and Mexico, where tariffs are zero), automakers are more likely to source more vehicles from lower-cost foreign markets to offset rising costs back home.
Trump came to office professing to be the best friend the auto industry has had in the Oval Office in at least a generation. But he and his trade team are showing their friendliness has its limits — and so does their understanding of a business that is more globally interconnected than anytime in is century-long history.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.