Rick Haglund: U.S. automakers aren’t toasting Trump’s tariffs

May 25, 2019 6:34 am

Ram Truck Dealership. Ram is a subsidiary of Fiat Chrysler Automobiles. | iStockphoto

If you were around in the 1950s and 1960s, you didn’t see many foreign-made cars on U.S. roads, especially in Michigan.

You might have spotted the occasional MG, Triumph or other British sports cars brought back by servicemen returning from World War II. And, of course, there were hundreds of thousands of Volkswagen Beetles driven by those who liked the quirky styling or saw it as a middle-finger to the big American gas-guzzlers of the day.

But the top Detroit automakers, then known as the Big 3, dominated the automotive landscape. General Motors, Ford and Chrysler controlled 95 percent of the U.S. market in 1955. GM, which sold half of all new cars nationwide in 1965, was so powerful that the Justice Department contemplated bringing an antitrust complaint against the automaker.

President Donald Trump, who often waxes nostalgic for the 1950s and who thinks there are too many Mercedes-Benz luxury cars in Manhattan,  seemingly wants to return the auto industry to the tailfin era. He has proposed or enacted a number of retrograde policies that could do it great harm.

That’s bad news for Michigan, home to the domestic automakers and a global center of advanced automotive technology development, including electric vehicles and self-driving cars.

Trump’s proposed 2020 budget would kill the $7,500 tax credit for buyers of electric vehicles, which automakers see as key to reducing carbon emissions and ushering in self-driving cars. The president also has criticized GM’s plan to increase electric vehicle production saying, “it’s not going to work.”

Oil platforms, Gulf of Mexico | Getty Images

If it doesn’t, federal energy policy might have a lot to do with it. The Trump administration’s efforts in that area are mainly focused on drilling for more domestic oil and keeping gasoline prices as low as possible, moves that bolster the market for gas-powered cars and trucks.

And while the Department of Transportation is working on regulations to ensure the safety of self-driving cars, Trump reportedly thinks they’re a “crazy” idea.

His administration last year stripped a federal automated vehicle proving ground designation from the multimillion-dollar American Center for Mobility testing site near Ann Arbor and nine other similar facilities around the country.

That could lead to more competition for federal dollars previously earmarked for the Michigan center and threaten the state’s leadership position in bringing self-driving vehicles to market.

Then there were the steel and aluminum tariffs enacted by the administration last year that cost Ford and GM each $1 billion in lost profits. Those tariffs were lifted on Canadian and Mexican steel this month.

But the biggest threat to the auto industry is a stunning declaration on May 17 by the Trump administration that cars, trucks and parts sent here by foreign automakers and auto suppliers pose a national security threat to the United States.

If agreements to reduce the flow of vehicles and parts from European Union, China, Japan and other countries aren’t reached within six months, Trump threatens to slap 25 percent tariffs on those products and take other unspecified actions.

Trump said competition from imports has hurt U.S.-based manufacturers of parts and vehicles, making it more difficult for them to afford research-and-development expenditures on things such as lightweight materials, powertrain technology and vehicle connectivity.

2019 North American International Auto Show in Detroit | Nick Manes

“The United States defense industrial base depends on the American-owned automotive sector for the development of technologies that are essential to maintaining our military superiority,” Trump said.

You might think Detroit automakers are clinking champagne glasses at the potential impact of this unprecedented government action to protect them. But you’d be badly mistaken.

The lobbying group representing Ford, GM, Fiat Chrysler and eight major foreign automakers, including Toyota and Volkswagen, has slammed the move as a threat to future automotive investments in the United States.

Enacting the tariffs would amount to “a massive tax on consumers” that could kill 700,000 jobs and have a “widespread impact across manufacturers, suppliers and dealers in all 50 states,” said the Alliance of Automobile Manufacturers.

Even the United Auto Workers union, which could benefit from more domestic auto and parts production, has been notably silent on Trump’s new tariff threats.

In an uncharacteristically strong response, Toyota said the Trump administration ruling “sends a message to Toyota that our investments are not welcomed, and the contributions from each of our employees across America are not valued.”

Toyota has 10 assembly plants in the United States, 475,000 U.S. employees and several research centers, including ones in Ann Arbor and Saline, the largest such centers outside of Japan.

A Michigan House Fiscal Agency report this month said growing trade tensions could hit the state with “employment reductions, declining incomes and higher prices for a number of consumer goods.”

Trump repeatedly tweets that companies can avoid tariffs by moving their operations to the United States. But it’s not that simple in the globally connected auto industry.

Escalating a trade war with China, where GM is a major player, could spark a full-blown trade war that might trigger a global recession, according to a new report from investment bank Morgan Stanley.

Trump may dream of the return to a 1950s American auto industry, but trying to recreate it could turn the dream into a nightmare.

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Rick Haglund
Rick Haglund

Rick Haglund writes the "Micheconomy" column for the Michigan Advance. He's a former reporter and business columnist for Booth Newspapers, now the MLive Media Group, with extensive experience covering Michigan’s economy and the auto industry. He now works as a freelance writer based in Southeast Michigan.