Experts: Michigan economy ‘strong’ but facing trade war ‘steamroller’

Jonathan Oosting
The Detroit News
Assembly worker Julaynne Trusel works on a Chevrolet Volt at the General Motors Hamtramck Assembly plant.

Lansing — Michigan is projected to continue adding jobs and growing incomes in coming years but an escalating international trade war could obliterate assumptions and hit the state hard, top economists told lawmakers Friday.

Deep connections to the automotive industry and manufacturing sector make Michigan's economy particularly susceptible to the impact of import and retaliatory export tariffs, according to experts.

“Michigan’s economy right now continues to look strong,” said University of Michigan economist Gabe Ehrlich, citing low unemployment and “decent” real income growth. But “I’m more worried than usual today than I typically have been” because of “uncertainty that currently is surrounding economic policy."

President Donald Trump’s ongoing trade war with China and other countries is particularly worrisome for Michigan automakers, said Kristin Dziczek of the Center for Automotive Research in Ann Arbor.

Trump could impose tariffs as high as 25 percent on imported vehicles within 180 days after the U.S. Commerce Department this week concluded those imports pose a threat to national security and domestic automakers, who oppose the plan.

"In terms of leverage" with other countries, the president "wants to put the bullet in the gun, put the gun on the table and start talking," Dziczek said. "And if things don’t go so well, he’s going to pick up the gun and put on the tariffs,” she said.

Tariffs are already “pilling up” on Detroit automakers, with steel and aluminum import tariffs costing them each about a billion dollars a year, Dziczek said. She described uncertainty over international trade policy and Trump’s proposed United States–Mexico–Canada Agreement as a potential “steamroller” for economic assumptions.

The proposed replacement for the North American Free Trade Agreement is a “question mark” for Michigan and its auto industry, Dziczek said. “All roads lead through Nancy Pelosi,” she said, predicting the proposal would likely be approved if the Democratic speaker of the U.S. House decided to put it up for a vote.

CAR estimates that the total impact of the Trump administration’s real and threatened tariffs could increase the average price of a light vehicle in the United States by $2,750, including a $1,900 increase on the price of domestically produced vehicles.

The trade war could cost nearly 370,000 industry jobs across the country, depress sales by 1.3 million vehicles per year and cost dealerships $43.6 billion in annual revenue, Dziczek said.

The University of Michigan is projecting about 16.8 million light vehicle sales in 2020, down from 17.2 million in 2018, with Detroit automakers' sales dropping from 7.2 million to 7 million units over the same time frame.

Michigan added roughly 50,000 jobs in 2018 and is expected to add 36,000 this year and 26,200 in 2020, Ehrlich said.

The state’s unemployment rate averaged 4.1 percent in 2018, and the current 12-month average is at a record low. “If you have a job in Michigan, your chances of holding onto it are very good right now.”

Slowing job growth is partially attributable to pending jobs cuts by General Motors in Michigan, Canada and other states that do business with Michigan suppliers. The automaker last year announced plans to “unallocated” its Detroit/Hamtramck and Warren Transmission plants.

United Auto Workers union contracts expire later this summer, and because of various factors, there is “a higher potential than in past negotiations for there to be a strike,” Dziczek said.