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U.S. President Donald Trump is burning America to the ground to rule over its ashes.
That seems to be the only explanation for his announcement last week of tariffs on the automotive sector, in violation of a trade deal he renegotiated and, at the time, heralded as the greatest ever.
Trump claims the move will cause billions of dollars of investment to flow into the U.S. automotive space as carmakers and parts makers build plants to escape the tariffs. He claims Honda has already started building. Honda says, umm, no we haven’t.
The net effect, instead, will be to severely damage the U.S. economy.
U.S. President Donald Trump (Pool / The Associated Press files)
New plants take multiple years to deploy, and carmakers, from Ford’s CEO Jim Farley to General Motors’ chief financial officer Paul Jacobson, say the uncertainty surrounding Trump’s tariff plans — one day they’re on, the next day they’re not — means they’re keeping their powder dry.
Plus, they’re not going to start spending billions building new plants, and losing billions more writing down existing Canadian and Mexican assets, only to have the new facilities come online just as Trump’s term ends and a new administration begins, one that could reverse the tariffs.
More important, the trade deals that have created a tariff-free bloc in North America have allowed all three countries to exploit the comparative advantages of each to the benefit of all.
Canada’s cheap energy makes it the perfect place for energy-intensive inputs such as forging and casting. Mexico’s cheap labour makes it the perfect place for labour-intensive inputs such as wiring harnesses, which all cars need.
The net effect, says respected Canadian auto industry analyst Dennis DesRosiers in Automotive News, will be to price out of the market most American new-car buyers. DesRosiers says increased costs will erase the already fragile economic case for tight-margin, lower-priced models, causing carmakers to pause those models altogether.
Costs in the sector will skyrocket: since American workers won’t accept Mexican wages, anything repatriated from Mexico will double, triple or quadruple in price. Canada won’t subsidize the gutting of its industry, so expect it to either dramatically increase the price of energy exports or end them entirely. Enjoy the darkness, New York.
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Sales will crater: DesRosiers estimates new-car average prices in America — both from increased prices and from the deletion of lower-priced models — could rise as much as US$12,000.
Layoffs will quickly follow: with fewer cars sold, fewer will be built. From assembly lines to service departments, jobs will disappear.
While this is happening, the billions Trump expects to flow into the U.S. Treasury won’t.
What we’re seeing is the net effect of critical differences between his first term and his second, and final: in the first, there were still adults in the room to counsel him. In the second, qualifications were not a consideration. Instead, he’s surrounded himself with sycophants who, apparently, have vowed never to speak truth to power.
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