The United States has the second largest automobile market in the world, just after China, so it is vital to each of the manufacturers. (Fortune) Of course Tweety McDumbass went after the foreign automakers who operate within the United States.
“You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax,” Trump told the German newspaper Bild, in an interview published Monday. (NBC)
That is not going to work for several reasons. Either Trump knows that and is playing a long-game con, or he is completely clueless about some pretty basic economic theory. I have an opinion on which one it is.
First of all, it is not even legal for him to do. It is completely unheard of (not only tweeting it, but also threatening it). And it is illegal under NAFTA, which is still in effect. That Trump singled out one company, and used his position to announce he did not care for their strategy, is mind-bogglingly insane. It could also cause Mexico to become quite pissed off and retaliate with a similar tariff on U.S. exports. Guess who that cost would be passed down to? Not the automakers, that’s for sure.
Even if Trump managed to undo NAFTA, he still is not legally able to raise tariffs to 35%. (This campaign pledge was completely bogus.)
Duties on goods produced in Mexico would only rise to the rate for countries with “most favored nation” status in the U.S.: about 4 percent, said Doug Irwin, an economist and trade expert at Dartmouth College.
Trump could impose 15 percent duties for 100 days on GM’s cars, claiming a “balance payments emergency,” but that would fall short of the punishment he’s threatened. Other fines, such as anti-dumping duties, require special and lengthy procedures to enact. For his 35 percent tariff to stick, Trump would likely have to ask Congress to include it in a broader overhaul of the U.S. tax code.
Republican Sen. Rob Portman of Ohio publicly expressed unease with Trump’s proposed GM tariff.
“If we do that it will end up hurting our consumers here because everything at Wal-Mart’s going to go up dramatically because they’ll retaliate against us,” said Portman, a former U.S. trade representative and a member of the Senate Finance Committee. (Tribune)
Also, building a wall around trade will affect exports, and these automobile companies export significantly from the U.S. The BMW plant in Spartanburg, South Carolina, produces all the BMW SUVs made. That means about half of the 850,000 vehicles they produced here last year were exports. BMW is the number one exporter of automobiles in the U.S. If Trump forces the issue, analyst Dave Cole warns it would lead to “lower choice for consumers and higher prices.” His think-tank issued a report last week stating because the U.S. also ships cars and car parts to Mexico, the restrictions Trump is threatening would end up costing approximately 31,000 jobs.
Factor in as well the additional cost of the tariff when the average car part crosses the border seven times. The tariff could technically be levied exponentially. That could easily price cars out of the market, which would cause companies to go bankrupt and put all the workers out of jobs. Mexico and Canada “are the top foreign markets for Detroit exports,” the CAR report noted. (NBC)
In the end, how have the automakers been handling this situation? Publicly, they have attempted to get on Trump’s good side. Privately, they are furious to be singled out, especially when many other industries operate in the same way. Most notably, the garment industry does most of its manufacturing outside the U.S. The Trump Brand certainly has not made any strides to bring their own production back home.
Trump is on the verge of starting a major trade war. His disciples think this is a magnificent show of strength and power. However, for every action, there is an equal (or worse) and opposite reaction. Trump cannot start levying huge tariffs on automakers without other countries retaliating. And we the people will be left holding the bill.