The Trump Effect on the Auto Industry (#Gas2WeekinReview)

The Trump Effect is surrounding us again. This time it’s in the form of stiff tariffs on imports of steel and aluminum. And the imminent tariffs are upsetting stock markets, according to the New York Times, with the prospect of a global trade fight around the proverbial corner. US President Trump’s announcement, which came during an insider meeting with industry executives, seeks to impose tariffs of 25% on steel and 10% on aluminum. The debate escalated as Trump declared he would consider a tax on imported cars if European leaders increased tariffs on US goods.

Reports from the Wall Street Journal have it that Trump’s pro-trade advisers are against the tariffs and are stunned.

Let’s use this edition of the “Gas2 Week in Review” to trace this most recent iteration of the Trump Effect on the US and the reaction of the marketplace, especially that of global auto and parts manufacturers.

Trump Effect

In what is increasingly a digital US economy, aluminum and steel imports together add up to about 2% of total goods imports, says Barclays. Yet the economic damage of steel and aluminum tariffs could multiply if other nations decide to retaliate. USA Today reports that stocks fell rapidly after the tariffs announcement. The Dow lost 420 points, or nearly 1.7%, and the Standard & Poor’s 500 index and Nasdaq each lost about 1.3%,

Penalizing Automakers Means Penalizing US Consumers

According to CNBC, the Trump Effect could affect car manufacturers like Volkswagen and BMW, which are quite popular with US consumers.  The German luxury car maker also manufactures many of its cars in the US, resulting in billions of dollars. In 2016, the EU shipped more than 6 million cars abroad, and the US — its largest market by far — absorbed more than 1 million of those, according to the European Automobile Manufacturers Association.

Trump Effect

Each year, the US imports more from Europe than the continent absorbs in US goods: this is a trade deficit worth more than $11 billion in 2017, according to U.S. Census data. Trump’s decision to impose tariffs on steel imports has increased murmurs of a trade war, exacerbating both the US political scene and global economic concerns.

The Association of Global Automakers (AGA), a trade group of international automakers and suppliers with US satellites that include Toyota and Honda, urged against tariffs and quotas, saying they could force auto prices and those of other consumer goods higher. John Bozzella, AGA president and CEO, looked to historic precedent. In 2002, steel tariffs cost some 200,000 jobs nationwide, including 30,000 in Michigan, Ohio, and Pennsylvania. “With one stroke of the pen, much of the promised benefit of tax reform and other administration initiatives aimed at reviving manufacturing and protecting national security could be undercut,” he foreshadowed.

“Stupid” Trade Tariff Threat to Be Met in Kind, According to EU President

European Commission President Jean-Claude Juncker has vowed that the EU will not sit idly while their industries are “hit with unfair measures that put thousands of European jobs at risk,” according to EuroNews. He responded that the EU would be bringing forward a proposal for World Trade Organization-compatible countermeasures in the next few days against the US to rebalance the situation.

“So now we will also impose import tariffs. This is basically a stupid process, the fact that we have to do this. But we have to do it. We will now impose tariffs on motorcycles, Harley Davidson, on blue jeans, Levis, on Bourbon. We can also do stupid. We also have to be this stupid.”

US Auto Parts Industry Concerned about Metal Tariffs

Ann Wilson, a senior executive at the U.S. Motor and Equipment Manufacturers Association (MEMA), has told Reuters that  “everybody is very concerned” that President Donald Trump’s metal tariffs will force American auto parts makers out of business.

“We’ve seen it in the stock market and level of CEO calls I’ve been getting over the last 24 hours how much this is a concern and how much of this overrides everything else. The smaller suppliers are the ones at risk because they can’t pivot and they can’t move their businesses. They may not be able to absorb this kind of cost. It’s not as simple as saying we’ll just make that specialty steel here.”

The U.S. auto parts industry employs about 880,000 workers and MEMA represents motor vehicle parts manufacturers, the largest U.S. manufacturing sector and largest employer of manufacturing jobs in the US.Trump Effect

Likely Consequences of the Trump Effect

Many economists say that, instead of increasing employment, price increases for consumers of steel and aluminum such as the auto and oil industries as well as boat and plane manufacturers will destroy more US jobs than they create. Even beer companies are concerned, and you should be, too. That’s because the costs of the tariff to US manufacturers tariff will be passed down to you-know-who: US consumers.

Are these proposed tariffs really tax hikes?

That’s a question that Larry Kudlow, a former Reagan official and prominent Republican economist, posed this week as he critiqued Trump’s announcement. Kudlow argues that the tariff effectively places a tax on every foreign shipment of those metals into the US. Allowing that, while Trump may genuinely believe that steel and aluminum tariffs will save blue collar jobs, Kuklow says that tariffs are likely to put at risk 5 million manufacturing and related jobs in industries that use steel. These are producers who compete in “hyper-competitive international markets”  with steel 20% above the world price and aluminum that is 7-10% above the price paid by US foreign rivals.

That tariff is really “a regressive tax on low-income families,” Kudlow contends.

Trump Effect
Photo courtesy of SNL/ NBC

Ending the Tariff Talks on a Light Note

Saturday Night Live has featured a running commentary on the Trump White House, with Alex Baldwin playing the chief executive. This week’s satire addressed the subject of tariffs, with Baldwin’s lines as follows: “Both sides hated it. I don’t care. I said I was going to run this country like a business. That business is a Waffle House at 2 a.m. Crazies everywhere, staff walking out in the middle of their shift, managers taking money out of the cash register to pay off the Russian mob.”

If the Trump Effect on automakers and US consumers could only be so funny.

Photo by Gage Skidmore on Foter.com / CC BY-SA

Photo by torbakhopper on Foter.com / CC BY

 

Carolyn Fortuna

Carolyn grew up in Stafford Springs, CT, home of the half-mile tar racetrack. She's an avid Formula One fan (this year's trip to the Monza race was memorable). With a Ph.D. from URI, she draws upon digital media literacy and learning to spread the word about sustainability issues. Please follow me on Twitter and Facebook and Google+