Trump Trades Blows, Con't

Trump's trade war with China, if fully implemented, could cost more than 700,000 automotive jobs in the US and add thousands to the price of new vehicles.

The impact of President Donald Trump's escalating tit-for-tat over tariffs is already being felt, say auto industry experts. New car prices are beginning to rise, and auto exports are dropping. But a new report warns that sales could plunge by as much as 2 million vehicles a year, resulting in the loss of up to 715,000 American jobs and a hit of as much as $62 billion to the U.S. GDP.

The Center for Automotive Research cites the biggest concern as the threatened use of trade rules known as Section 232 that would declare foreign-made cars and car parts a threat to national security. That could trigger a “downward cycle” in an auto industry already showing signs of decline after rebounding from the Great Recession, said Kristin Dziczek, a vice president and senior economist at the Center for Automotive Research, or CAR, in Ann Arbor, Michigan.

CAR’s new study is echoed by a variety of other studies looking at the potential impact of the Trump administration’s escalating trade war.

Already enacted tariffs on imported aluminum and steel have added about $240 to the cost of producing a new car, truck, or crossover in the U.S., noted Peter Nagle, a senior economist with research firm IHS Markit. And the first round of tariffs with China is adding still more to the price that manufacturers have to pay for a variety of parts used on American assembly lines.

The impact will grow as a result of the second round of China tariffs, Nagle added, cautioning that a “dizzying” series of trade moves will “exacerbate” the problems the auto industry faces as it struggles to head off the first downturn in sales since emerging from the depths of the last recession. Activating tariffs using Section 232 rules would likely prove devastating, he warned.

Nagel estimated consumers would be “looking at price increases of $1,300 for a typical mass market product, up to $5,800 for a luxury vehicle.” Those increases would not be limited to just imported vehicles. Toyota, for example, has forecast the price of a U.S.-made Camry would rise about $1,600.

In line with the new CAR study, IHS forecasts U.S. new vehicle sales would plunge by around 2 million vehicles annually, to 16.5 million a year from 2019 to 2025.

Add the possible tear-up of the North American Free Trade Agreement and the impact could be devastating. Under NAFTA, automakers have established a continent-wide network of parts and vehicle assembly operations. That’s backed up by a global production system that has been finely tuned, with little room for disruption. But industry experts warn that the Trump administration’s trade moves threaten to fracture that grid.

The impact could mean more than just higher costs. A number of medium-sized and smaller parts suppliers could be forced out of business, unable to afford the cost of relocating their operations back to the U.S. That could result in disruptions at assembly plants, said Nagle, possibly meaning shortages of some products, and a big hit to automakers’ profits.

So yes, in the short-term, it would be good for parts plants and suppliers already in the US.  But for anyone who gets parts from China, it would be devastating.  And 700,000 lost jobs coupled with the far-reaching effects of a NAFTA collapse would almost assure another brutal recession next year.

I'm not sure what Trump is thinking, but enough MAGA-hat good 'ol boys out of work at the parts plants in the Midwest and he's going to be congratulating a Democratic president in 2020.