Trump's tariffs: good or bad for the auto industry?

January 27, 2017

During the run-up to America's presidential election, Donald Trump issued a number of controversial proposals, but few garnered as much attention as the wall he suggested building along the U.S.-Mexico border. 

This week, Trump made it clear that he's ready to build that wall, both physically (with concrete and wire) and metaphorically (with border taxes). That's forced automakers to assess its impact.

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As with most things, the impact will ultimately depend on how much the project costs and how it's going to be funded. That's no small consideration: early estimates suggest that the physical wall could cost as much as $25 billion.

Time and again, Trump has insisted that Mexico will pay for the wall. Mexico, however, has made it abundantly clear that it will not be footing the bill.

So, if Mexico doesn't, who will? And when the real and metaphorical walls are complete, what effect will they have on the U.S. economy? Here some of those who stand to win--and lose--by beefing up the border:

Autoworkers: win (kinda)
Many folks who work in the auto industry have historically been wary of GOP policies, which often aim to chip away at the power of unions. Trump himself is no fan of unionized labor, but he won over considerable numbers of autoworkers with promises to strengthen America's manufacturing sector by stemming the flow of jobs to other countries.

To date, Trump has taken credit for keeping several thousand manufacturing jobs in the U.S.--jobs that might otherwise have gone to workers in Mexico. Many of the president's claims have been disputed, and by most accounts, he hasn't saved as many jobs as he's suggested.

However, Trump's been very keen to keep pressure on U.S. corporations. The threat of being openly criticized by the president--usually in a tweet--is clearly having some effect on companies and making them more wary of shifting jobs to foreign countries.

In other words, at this point, Trump's policies haven't created many jobs, but his aggressive "made in America" stance has likely slowed losses, particularly of manufacturing jobs.

Fully reversing the flow of jobs across the border will be far harder task, particularly in the auto industry. Many of the jobs that have moved to Mexico involve the manufacture of cars, especially small cars. In 2016, small, midsize, large, and luxury car sales all ended the year in the red, with most down about eight percent. With gas prices as low as they are, the car market isn't expected to improve anytime soon, so the number of car manufacturing jobs in Mexico could actually decline thanks to layoffs.

On the other hand, sales of trucks, SUVs, and minivans, were generally up in 2016--sometimes experiencing double-digit gains. Many of those larger vehicles are manufactured here in the U.S., and the workers who build them aren't in danger of losing their jobs anytime soon.

With most analysts suggesting that the U.S. auto market has plateaued, it's unlikely that car companies will add too many workers to existing U.S. assembly lines, even those that manufacture popular SUVs. They could shift some manufacturing jobs from Mexico to the U.S., but if cars continue to experience slow sales, those gains could be offset by layoffs.

Bottom line: Trump's policies could stabilize the manufacturing sector, but how much it can do to improve it remains to be seen.      

Car companies: lose (kinda)
If enacted, Trump's policies will have several effects on automakers, all of which will cause the cost of doing business to rise.

Most importantly, automakers will pay more for labor, because they'll build more products in the U.S. They'll also pay tariffs on vehicles produced abroad that are sold in the U.S. Those increased costs will almost certainly result in higher sticker prices for consumers, reducing demand for cars.

It's also entirely likely that American-made products will be hit with tariffs in other countries. After all, if the U.S. starts slapping border taxes on imports from certain countries (e.g. Mexico), it's likely that those countries will retaliate in kind. That would make U.S. products less competitive in foreign markets, reducing automakers' revenue. 

There's a chance that some of those financial hits could be mitigated by Trump's proposed rollback of corporate taxes and regulatory requirements. However, to contend with all the price increases and revenue reductions caused by border enforcement, the savings to corporations would have to be very, very substantial.

Consumers: lose (definitely)
As much as we might hate to admit it, U.S. consumers have grown accustomed to cheap products imported from other countries. Next time you're at Walmart, Lowe's, or your local grocery store, take a good look at the things in your shopping cart. Chances are good that many of them were made or grown abroad in Mexico, China, Vietnam, and a host of other countries.

Any border tax that's enacted will make those items more expensive to import. That cost is likely to trickle down to consumers, which will certainly take a toll on the country's growth.

Some corporations--especially those outside the manufacturing sector--may see significant benefits from tax reductions and the like. However, most of that influx of cash won't end up in workers' pockets.

In other words, Trump's policies will likely increase the cost of living in America, and it's questionable whether salary increases can counter those upticks.

Obviously, these are seriously complicated issues, and it's impossible to do them justice in short articles like this. If you'd like to add your $0.02, feel free to do so in the comments below. 

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