Published on February 7th, 2017 | by Steve Hanley
Love The Trump Border Tax? Hold On To Your Wallet!
Donald Trump’s enduring hatred for Mexico and all things Mexican is going to cost consumers a fistful of dollars. If enacted, his capricious attempt to punish Mexico could see car prices rise as much as $2,500 on average. Thanks for nothing, your Trumpness! The Trump border tax proposal sounds good on Twitter but lacks any careful analysis or details. That leaves a lot of room for speculation. What follows is nothing more than a compilation of guesses by people who claim to have some expertise in the matter.
Colin Langan, an analyst at UBS Securities, has an opinion on the Trump border tax. He suggests Trump’s Make America Great proposal will make Americans a lot poorer. If enacted, the plan could raise average vehicle prices in the U.S. by about 8 percent, or $2,500 per vehicle, Langan says. If that happens, he predicts car sales in America would be reduced by 2 million vehicles a year. How “great” is that? Thank you, Donald.
Another guestimate circulating among corporate boardrooms this week is from Michigan based industry analyst Alan Baum. In his view, which he calls a “thought exercise,” Baum estimates most automakers would need to raise vehicle prices by thousands of dollars, although some would fare better than others.
Tesla would suffer almost no impact, as its cars are all made in the US and use predominately US made parts. The impact on Ford would be quite modest at an estimated $282 per vehicle. The bite on GM products would be larger — about $1,000 per vehicle. Volvo and Volkswagen would need to raise prices by about $7,000 per vehicle on average. Land Rover would see its prices shoot up by as much as $17,000 per vehicle!
Subaru, Mitsubishi, Mazda, and Hyundai/Kia Motors Corp. would have to build new manufacturing plants in the US, pay someone else to build their cars, or simply exit the US market, shutting down their sales, parts, and distribution networks on the way out the door.
“The plan results in a net cost for automakers,” Baum told Bloomberg in a telephone interview. “Each company will then make its own decisions on pricing in order to best compete and maximize its profits.” The chart above is how Baum sees the border tax affecting car companies that currently do business in America.
Others predict the border tax would lead to 1,000,000 more cars being produced in the US every year, which would add about 50,000 jobs to the economy. But that prediction does not take into account the hundreds of thousands of jobs that would be lost if consumers can’t afford to pay higher prices for those cars. Tax and tariff policies are two edged swords that cut both ways, a fact that The Donald apparently cannot wrap his addled brain around.
Predictably, corporate America is choosing sides, depending on who stands to win or lose based on the Trumpian border war plan. General Electric Co. and Boeing Co. are in favor while Toyota and Wal-Mart warn it will cost consumers dearly as a result of higher prices for food and clothing, gasoline and auto parts.
So, OK, Trump supporters. How much more are you willing to pay to make America great again? Don’t be shy. Step right up and tells us — publicly — how many of your dollars you are willing to contribute to the cause. Usually, people are all in favor of broad ideas until they find out they come with a financial cost. What are the odds that those who proclaim their love for The Trump Who Stole America the loudest will be the first to scream bloody murder when they find his policies will take money out of their pockets? So much for standing on principle.
We may not need to worry, though. According to Colin Langan, a draft bill to implement the new border tax scheme should be ready for consideration by Congress later this month or in March. He thinks there is a good chance it will get approved by the House of Representatives but is “very unlikely” to pass in the Senate. Dear Donald may be shocked to find that in the real world, even presidents have to deal with Congress and cannot simply rule by decree.