Automakers don’t need Trump’s help on trade
The U.S. auto industry doesn’t need President Donald Trump’s help on trade. And he certainly shouldn’t hurt them with unnecessary and ill-conceived tariffs.
Take a look at where the domestic industry stands today:
U.S. auto sales reached 17.1 million in 2017, their fourth highest level ever. The segment produced nearly $1 trillion in economic activity last year.
Vehicle exports from U.S. plants doubled to 2 million a year; exports to Asia are up nearly 500 percent since 2003.
Employment in the auto sector has made a strong comeback since the Great Recession of 2008-09, and now stands at 7.5 million in the United States.
International automakers invested $75 billion in the U.S. over the past two decades. Thirteen automakers built nearly 12 million vehicles in the U.S. last year.
This is not an industry that needs protection from America’s trading partners.
And yet this week, the president said he is considering tariffs on automotive imports in the interest of national security, declaring auto and auto parts production critical to the nation’s well-being.
He’s right there; automaking is a vital industry, touching one in seven U.S. jobs. But he’s wrong about the tariffs.
Rather than aid American automakers and autoworkers, his plan is more likely to drag down the profits of domestic producers and threaten jobs.
Detroit’s Big Three automakers are major importers of vehicles they make in Europe and Asia to sell to U.S. consumers. For the most part, they are smaller vehicles that can’t be made profitably here because of higher labor costs and lower margins.
Making those cars overseas and selling them in the United States allows the domestic manufacturers to focus on larger, more profitable vehicles for U.S. production, without having to cut wages.
The same holds true for auto parts. U.S. manufacturers are both exporters and importers of parts for vehicles. Most U.S.-made automobiles contain both foreign and American made parts, as do most vehicles made overseas.
The automobile industry is among the most global, and seems to have found the right formula for making and selling vehicles where it makes the most sense.
The timing of Trump’s tariff threat is curious. The administration is currently in negotiations with Mexico and Canada on a rewrite of the North American Free Trade Agreement, and that will address automotive trade.
Trump wants to raise the amount of U.S. made parts in vehicles that are sold duty-free under NAFTA.
The president predicted American manufacturers and autoworkers would be happy with his proposal. Not likely. Foreign automakers based here will be particularly hard hit, putting at risk 110,000 American jobs.
While the Big Three would like relief from Chinese trade barriers that make it almost impossible to export a vehicle to that country, now the world’s largest market for cars and trucks, the broad tariffs Trump is considering will harm the domestic manufacturers elsewhere.
Detroit doesn’t need help from Washington in managing automotive trade. It does need the president to stop tinkering with tariffs that could well send the whole industry sliding.