Trump's plan to boost U.S. automakers is squeezing them instead
Add Axios as your preferred source to
see more of our stories on Google.
Imported vehicles at the Port of Baltimore, one of the nation's busiest hubs. (Kevin Richardson/The Baltimore Sun/Tribune News Service via Getty Images)
A consequence of President Trump's new trade deals with Japan and the European Union is that they could entice foreign automakers to import even more cars to the U.S., rather than grow their American operations.
Why it matters: Trump's effort to reshape global commerce assumes that punishing tariffs on imports will force foreign manufacturers to set up factories in America, strengthening the U.S. economy.
- But his trade policy conflicts in many ways with those industrial policy goals, for now at least, by making it cheaper to import cars than to build them in North America.
The big picture: That's probably not the case forever.
- Trump's penchant for one-off trade deals with individual countries means some will have agreements before others.
- But neither U.S. automakers nor the United Auto Workers are happy about the advantages their competitors have at the moment.
Where it stands: Tariffs on cars imported from Japan or Europe will face a 15% tariff, starting Aug. 1, in lieu of a 25% tax hike the U.S. imposed on all imported vehicles and car parts earlier this year.
- It might seem like a reprieve, but it's still sharply higher than the 2.5% they had been paying before Trump took office.
- U.S.-built cars, by contrast, are taxed 25% on imported parts (except for those that comply with the U.S.-Mexico-Canada trade agreement signed by Trump in his first term). That applies not just to the Detroit 3 carmakers, but also to foreign automakers with U.S. plants.
- Plus, they're subject to 50% tariffs on imported steel, aluminum and soon, copper.
- Cars built in Canada and Mexico, already taxed at 25%, face even higher tariffs beginning Aug. 1. For Canada, the new rate would be 35%; for Mexico, 30%. Many companies build vehicles in Canada or Mexico and ship them to the U.S.
Winners and losers: For now, the winners of Trump's head-spinning trade policies are Japan, the UK and the EU, James Schmidt, vice president-autos for the Oliver Wyman consultancy, tells Axios.
- At least those countries can move forward with their strategies for serving the U.S. market, he said.
- Losers are the countries still negotiating, like South Korea, Mexico and Canada, as well as U.S. automakers that produce vehicles in those countries. Trump has said tariffs will go up on Aug. 1 if no deal is reached.
- "It's a big jigsaw puzzle right now," says Schmidt. "The rest of the pieces still have to fall into place."
- In the short term, he said, Japanese and European carmakers may be enticed to import more cars to the U.S., even with the 15% tariff, to avoid other levies.
What they're saying: "U.S. trade policy should push automakers to build in America, with skilled, union labor. A flat 15% tariff doesn't accomplish that," the UAW, which previously backed Trump's tough talk on tariffs, said in a statement.
- "In fact, when left unchecked, companies often respond by shifting final assembly and supply chains to even lower-cost countries—making the situation for workers far worse. American workers deserve more than empty promises. They deserve a trade policy that delivers real jobs and a real future."
The other side: "No president has taken a greater interest in restoring American auto industry dominance than President Trump, and the Administration is in constant touch with the auto industry to meet this objective," White House spokesperson Kush Desai told Axios.
- He pointed to trade deals that open up market access in Japan and Europe for American brands, as well as efforts to expand domestic metals production.
The bottom line: It's difficult to predict the future, but U.S. trade policy is starting to become clearer, David Steinert, a partner in the automotive and industrial practice at the consulting firm AlixPartners, tells Axios via email.
- "We think there's a good chance that vehicle import tariffs for inside the USMCA will eventually be more favorable than those from the UK, Europe, Japan and Korea (potentially around an average 7.5%)."
