President Trump’s Tariffs Policy is Working
President Donald Trump’s trade and tariff strategy, risky as it may seem is working. He is a master negotiator is hammering out agreements, 1st with the Europeans, next Mexico, both are better deals for American firms and workers.
His threat of tariffs is leading to lower tariffs.
And if President Trump keeps his winning ways, he may end up being 1 of the Champions of freer trade.
But President Trump is holding firm on his call for 20 to 25% auto tariffs on all imported auto parts and cars. These are said by the White House to be necessary for national security reasons. But, really this tariff is about saving American auto jobs.
We believe it will work, but it has not been successful in the past.
What is very different today from even the failed trade protectionist policies of the 1970’s, ’80’s and 2000’s is that global supply chains make it increasingly difficult to determine what country made the car.
The steel in a Ford truck may have come from Canada, with the parts coming from Singapore and the electronic gadgetry coming from Germany, and some of the assembly may have been done in Mexico.
But The Trump Tariffs would be imposed not just on imported cars but on the auto parts, which would make manufacturing the car in the United States clearly more expensive.
With $50-B of annual sales abroad, America is the 3rd-largest exporter of cars, behind Germany and Japan. This means that America might end up losing many auto jobs because of the tariffs. This is one of the reasons most of the American auto companies oppose these tariffs that are supposed to “protect” them from foreign competition.
The employment impact of the proposed 25% tariff could add significantly to the cost of cars made in America and result in a 2% drop in direct auto-sector employment, rising to 5% and a total job loss of over 600,000 after expected in-kind retaliation by trading partners, according to an analysis by the Peterson Institute for International Economics. This is the opposite result of what President Trump intends.
The tariffs would raise the cost of buying a new car by as much as $2,000, which would be a big dent in family incomes. Many consumers would delay buying a new car, and this in turn would mean more old cars on the road.
As President Trump’s own Department of Transportation found in its excellent study on the cost of Hussein Obama-era fuel efficiency standards, delaying the purchasing of new cars means more pollution and more traffic deaths.
But, to his credit, President Trump has won trade concessions from the Europeans and now the Mexicans with the threat of tariffs on cars and auto parts, and Canada is next.
Implementing the tariffs would be negative.
History proves that the best way to boost the US auto industry is not with protectionism but by creating a level playing field that forces Ford (NYSE:F) and General Motors (NYSE:GM) to compete on a level playing field.
The booming economy is visible proof that President Trump’s strategy is working with every other American industry from computer chips to denim jeans.
We believe it will work on cars too.
Keep barking Mr. President, make them believe you will bite.