Beyond the Hysteria about Auto Tariffmageddon

After decades of relentless offshoring, the equation may change for automakers and component makers.

President Trump’s threat to impose tariffs of 20% or 25% on auto components and vehicles imported to the US is causing a bout of hysteria that is splattered all over the media.

The auto industry lobbying group, Alliance of Automobile Manufacturers, is now claiming that a 25% tariff on imported vehicles and components would cost US consumers $45 billion a year, or $5,800 per vehicle. “This would largely cancel out the benefits of the tax cuts,” it says.

I have serious doubts about those numbers, and “propaganda” comes to mind. But even it they’re correct theoretically, the calculation assumes that the industry would not react to those tariffs except by passing them on to consumers. Consumers are unlikely to go for that program, and automakers will end up restructuring their supply chains and manufacturing to bring some production back to the US, after having spent decades on offshoring production.

That’s one purpose of tariffs. Another purpose is to persuade other countries to lower their own tariffs. It has been an uneven playing field for decades, stacked against US workers.

The EU imposes a 10% tariff on all cars, SUVs, compact SUVs, vans, and pickups imported from the US. The US imposes a 2.5% tariff on imported passenger cars, SUVs, compact SUVs, and vans from the EU and a 25% tariff on imported pickups (a tiny segment of the EU market).

China imposes a 25% tariff on all imported vehicles but offered to cut this to 15% as a goodwill gesture in the trade war. To get around the Chinese tariffs and sell vehicles to the 1.3 billion Chinese consumers, all global automakers have invested billions of dollars in China, have set up large manufacturing facilities in required joint ventures with often state-controlled Chinese companies, and have submitted to the required technology transfers. GM now makes and sells more vehicles in China than it does in the US.

Japan controls what comes into the country via administrative hurdles. US automakers have found that the costs of getting low-margin small cars over these hurdles are such that the equation doesn’t work out, which is precisely the purpose of those hurdles. US automakers have screamed about this for decades, to no avail.

NAFTA partners Mexico and Canada are tightly woven into the automakers’ supply chains. Despite the pressure from the White House to bring auto production back to the US, GM announced just last week that it would build its new Blazer compact SUV in Mexico, where it already employs 15,000 workers.

In terms of auto exports from the US, the challenges are different with each trade partner, but they’re huge.

In terms of auto imports, Corporate America – not China, Mexico, Canada, or Germany – has been the biggest force with its relentless drive over the past decades to offshore production.

The supply chains of the auto industry go all over the globe in search of cheap labor, lax environmental laws, and other profit-enhancing factors. Shipping costs are significant, and there are risks, such as having your IP purloined, but no matter. And much of the US component industry, after having collapsed during the Financial Crisis, wandered off to China and Mexico.

While China-made components are in every vehicle sold in the US, only two models that are assembled in China are sold in the US: the Buick Envision compact SUV and the Volvo S60 sedan. Volvo is owned by Chinese automaker Geely.

So China-made components could be a big target for tariffs. In terms of assembled vehicles, the largest targets are the EU, particularly Germany, Japan, South Korea, Mexico, and Canada.

Tariffs on vehicles imported from Germany, Japan, and South Korea would mostly be a benefit for US automakers since it would make competition easier in the US. But GM has big and very troubled plants in South Korea (GM Korea) that produce small cars, some of which GM imports to the US.

But tariffs on imports from Mexico and Canada would be a big problem for US automakers. Moody’s puts some numbers to this:

GM (GM) imports 30% of the vehicles in sells in the US. Most of those imports are made in Mexico and Canada, including “a significant portion of its high-margin trucks and SUVs.” GM pays its 15,000 workers in Mexico less than $3 per hour on average.

Ford (F) imports 20% of the vehicles it sells in the US, most of them from Mexico and Canada.

Both companies would need to absorb the costs of shifting some production from Mexico and Canada back to the US. This type of restructuring in manufacturing takes time and money. In addition, profit margins in the US would be thinner. “They would also likely need to subsidize sales to offset the tariffs during the near term, and could eventually pass on the higher costs to consumers,” Moody’s says.

Consumers might balk at higher prices, and the companies might end up with thinner profit margins, which would be anathema to Wall Street. So given the difficulty of passing the tariffs on to consumers, automakers are likely to shift some production back to the US as the lower-cost option, which would be one of the purposes of the tariffs.

Japanese automakers have been manufacturing in the US for decades:

Toyota (TM) imports 48% of the vehicles it sells in the US (2017).

Nissan imports 42% of the vehicles it sells in the US (2017).

Honda (HMC) would be among the least impacted automakers. It has 12 plants in the US that make Hondas and Acuras plus engines, transmissions, and other components. Four Hondas are ranked in the top 10 in terms of US domestic content, including the Odyssey, built in Lincoln, AL. It has 75% domestic content, which puts it in second place.

The idea of tariffs is to get automakers – including GM and Ford – and component makers to follow Honda’s lead and manufacture more in the US.

Hyundai imports just under 50% of the vehicles it sells in the US, it says. It already has plans to increase production in the US, and tariffs will likely be an encouragement to enlarge and speed up those plans.

Kia Motors, an affiliate of Hyundai, manufactures its Optima and its Sorento in West Point, GA, and imports the rest. Like Hyundai, it also has plans to increase production in the US. Tariffs would boost those plans.

The big three German automakers — Volkswagen, BMW, and Daimler — all have manufacturing plants in the US. Some export part of their production to other countries. They too might be thinking about how to shift more production to the US.

Jaguar Land Rover and Volvo would get hit hard by tariffs, along with other automakers that have no manufacturing plants in the US. Jaguar Land Rover is owned by Tata Motors in India.

Component makers would feel the pain. The parts that go into major assemblies may cross multiple borders, sometimes back and forth in various stages of completion, and could incur multiple tariffs on both sides of the borders. So the component industry might have to contemplate a major restructuring of its production locations – and bring some of them back from Mexico and China, which too would be a good thing for the US.

The purpose of tariffs is not to make products more expensive for consumers, though that can be a consequence. The purpose is to motivate manufacturers to invest and produce more in the US, thus changing the equation for offshoring that Corporate America has pursued with relentless passion for decades. This aspect of the tariffs is getting lost in much of the hysteria about the tariffs.

Where the heck is the hyped “replacement demand” from Hurricane Harvey? Read…  I’m in Awe of How Carmageddon Continues in Houston at Financial-Crisis Levels  
 

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  84 comments for “Beyond the Hysteria about Auto Tariffmageddon

  1. Drango
    Jun 27, 2018 at 11:40 am

    This is the ONLY thing I’ve read that takes (American) jobs into consideration when discussing auto tariffs, which says a lot about the current state of the financial media. Even Trump isn’t talking about this. Instead, he talks about the stock market, as if that’s what the unemployed are most concerned with. It’s a sad state of affairs when tens if not hundreds of thousands of Americans are nothing but a footnote in the minds of the movers and the shakers, and the “journalists” who cater to them.

    • Bobber
      Jun 27, 2018 at 10:05 pm

      Spot on. All you hear the pundits talk about is the negative impact of tariffs. They say everybody loses, and they forget to mention US labor as a big big winner. I guess they’ve picked all the money out of Average Joe’s pocket, so they don’t care about him anymore.

      • Harrold
        Jun 28, 2018 at 11:44 am

        Starting wage at GM is $14/hr.

        • P Walker
          Jun 30, 2018 at 2:44 pm

          And if tariffs go up, the rate will be pushed down. That’s the easiest way the board can remediate losses from cost saving overseas.

          You can be sure they’ll bitch about how “expensive” workers in the USA are. They just can’t stop themselves because it’s in their own narrow interests to keep the myth going.

      • golferdave
        Jun 29, 2018 at 8:02 pm

        Tariffs are a tax grab paid by the consumer ultimately. Their purpose is to raise prices and pad corporate bottom lines. Trickle down in action…but somehow only afew crumbs make it to the great unwashed.

    • Solitario
      Jun 29, 2018 at 5:13 pm

      “Japan controls what comes into the country via administrative hurdles. US automakers have found that the costs of getting low-margin small cars over these hurdles are such that the equation doesn’t work out, which is precisely the purpose of those hurdles. US automakers have screamed about this for decades, to no avail.”

      For this not to be absolute drivel, you’d have to give at least two examples of the “administrative hurdles”.

      Also, since you have added information about auto import duties in US, it would be great if you could do the same for imports from US to Japan…wait that would be 0%…that’s probably you forgot to mention it…

      • Jun 29, 2018 at 8:17 pm

        “Japan controls what comes into the country via administrative hurdles.” That’s fairly plain English to express that Japan uses these hurdles instead of tariffs. Sorry you didn’t get that.

        Administrative hurdles as a strategy is how Japan has been dealing with imports forever. These are complex mechanisms based on rules and bureaucrats. My wife, who is Japanese, works for a US exporter that exports food products from the US to Japan. The administrative hurdles are just stunning. They’re all experts at this company, and they have a sister company in Japan, all staffed by Japanese. And the costs of getting products over the hurdles are such that the food products are then very expensive in Japan. This works for specialty food products that Japan does not produce. But it would make them totally noncompetitive with local products.

        So you can import BMWs and Ferraris and Lambos and add the extra costs, and they’re very expensive, but fine because they’re a luxury product. But try to import a lower-end mass-market vehicle with already thin margins where the manufacturer has to swallow all the extra costs of getting over the hurdles. Just not happening.

        I’ve long been planning to write a 5,000 word monster article about this to scratch the surface — and someday I might.

        • Tom Skowronski
          Jun 30, 2018 at 5:15 pm

          As one who has spent a lot of time in Japan, I heartily agree with Wolf. I have seen propaganda articles in the newspaper saying Japanese intestines are different and can only process Japanese beef not imported beef. Also, Japanese snow is different and Italian skis will not work so good up in Hokkaido. T

          They have JIS standards written for everything and keep everything out by saying you do not meet our standards.

  2. DCR
    Jun 27, 2018 at 11:45 am

    The largest profit pool by far in the U.S. automotive markets is the sale of large pickup trucks currently protected by a 25% tariff. Our hands are hardly clean here.

    • nick kelly
      Jun 27, 2018 at 12:07 pm

      Was just going to say that. Beat me. But I will add this: back out trucks and there is not a whole lot left of the domestics, especially GM.

      RE: the Japanese competition beginning around 1970. Can you imagine if there hadn’t been competition and that 70’s and 80’s domestic crap was still being served up?

      • Kent
        Jun 27, 2018 at 12:34 pm

        Quick anecdote: Around 2002 or so, a good friend of mine and his wife went out and bought a brand new Pontiac for his wife. First new car the guy had ever bought. As he pulled into his driveway and came to a stop the clear plastic covers over both of his headlights fell off the car onto the driveway. He never bought another GM product. Nor have I.

        • Mean Chicken
          Jun 27, 2018 at 4:48 pm

          My 2000 Buick is approaching 300,000 miles, still runs like a top and looks pretty good considering the salt covered roads stubbornly humid environment it’s endured.

          Headlight lenses are well attached but are foggy and need replacement (<$100).

      • SquarePeg
        Jun 27, 2018 at 12:50 pm

        Good catch Nick.
        Nobody talks about how the Japanese saved the Americas from the bloated scrap crap we were being offered by the complacent fat cats of our domestic automobile industry.
        Sure the Europeans had some great stuff but Japan made them affordable with a reliability record that beats them all.

        • nick kelly
          Jun 27, 2018 at 2:06 pm

          Have to give a tip of the hat to the Beetle too. It was the Beetle that forced GM to come up with Vega, and Ford with Pinto.
          It’s easy to laugh at both but a lot of people got a lot of cheap miles, especially out of Pinto.
          GM overruled its foundry guys and put an aluminum head in Vega. Ford still had enough hands- on guys to know this was not a great idea. Just one overheating in Vega and it would warp.

          BTW: I hope WR is not going to pick on German cars. Hardly appropriate for a guy who was chauffeured in a luxury BMW as a kid.

        • Jun 27, 2018 at 3:41 pm

          “…. who was chauffeured in a luxury BMW as a kid.”

          The image is kinda funny. But, um, note quite. We didn’t even have a car. Used mass transit, bikes (rode to school every day), or shoes. Grew up in a “modest” household.

          BTW, I’m not going to pick on anyone except Corporate America, and specifically the US automakers… lots to pick on.

        • RD Blakeslee
          Jun 27, 2018 at 2:16 pm

          Even earlier, the VW Beetle engendered the Chevrolet Corvair, which, in turn, engendered Ralph Nader’s “Unsafe at Any Speed”, which engenders the observation that early U.S. efforts to emulate foreign auto engineering didn’t always go smoothly.

        • Dan Romig
          Jun 27, 2018 at 4:35 pm

          Gotta add two things:
          In 1970, the Datsun 240Z was the groundbreaker for convincing Americans that a Japanese car was worthy to own. I had a few 280Zs and a 240Z in my twenties. I know Wolf has driven and owned the Z.

          The original Corvair was not a good set up via its rear suspension layout, but by 1965, it had been reengineered. By then it was too late to save the model. In ’94 I bought a mint Corvair Monza coupe with a two speed power-glide transmission, and it was my daily driver for five years. It drove like a dream in Minneapolis’ winters with Yokohama snow tires on it, and it was a beautiful looking car too.

          http://i.kinja-img.com/gawker-media/image/upload/s–dBdy3m5l–/sywh7kubzribzgzle9t1.jpg

        • alex in san jose AKA digital Detroit
          Jun 27, 2018 at 4:51 pm

          Here’s a decent article on the “chicken tax” which has shaped so much of US auto import history – halfway down you can learn why there are these weird cargo vans that look like they have painted-over windows.

          https://fee.org/articles/chicken-tax-makes-trucks-expensive-and-unavailable/

        • Gibbon1
          Jun 28, 2018 at 1:42 am

          My dad worked with an ex automotive engineer who said basically at the end of the 1960’s the big three decided they know all there was to know about building cars and… laid off much of their basic engineering staff. Far as they were concerned they’d sell 1969’s Ford Galaxy’s with new sheet metal every few years for ever and ever.

          And then came the oil crisis, tail pipe and safety regulations. GM and those guys thought they could muscle all that way politically. Did the bare minimum and built a lot of crap cars.

          Japanese ate their lunch with cars like the Dotson 510.

        • nick kelly
          Jun 29, 2018 at 10:37 am

          I was joking about WR’s childhood ride in the ‘luxury’ Isetta three wheel bubble- car. It was built under an Italian license, but still a BMW with logo on the front. BMW almost went bust in the 50’s and at one time was largely a car repairer.

          It actually came in a single cylinder version but only the 2 cylinder was really practical. Quite a come down from building the 1200 hp radial for the Focke- Wulf 190.

          I’ve read that today in Germany BMW’s is ‘cooler’ than Mercedes, which is seen as grandfather’s car.

          Today an Isetta is collectable with a nice one maybe getting 30K

          It might be an idea for Angela Merkel to drive one to the next ECB meeting, to demonstrate thrift.

      • led lights
        Jun 27, 2018 at 6:35 pm

        Headlight lenses are well attached but are foggy and need replacement (<$100).

        Use toothpaste and a toothbrush to clean the lenses – one of the gritty types and they will clean up nicely on the outside.

        Save yourself some bucks

      • nick kelly
        Jun 27, 2018 at 7:35 pm

        My main complaint about those cars was their terrible handling, especially Ford’s. If the rear tire pressure in a Grenada got slightly low it developed a mind of its own.
        Also had a Ford Custom. Excellent 302 motor as was 289.
        But Ford’s ‘dead’ feeling power steering and mushy ride precluded decent handling.
        Ever had a bad experience going too fast at night and hit ice?
        That’s when you need feedback from the car’s steering.

        I’m not the only one who thought this about Ford’s handling: the Popular Mechanics of I think Oct. 81 reviewed Lincoln Town Car and a Caddy,
        Went to town on both. I thought PM was going to be sued but maybe the auto execs decided not wise. “wretched excess on wheels’ was said of both.
        But PM saw some differences. ‘Caddy had fit and finish of an econobox’ with shims and gappy panels.

        Build quality of Lincoln was rated much higher. Just one main prob.
        “Even our professional drivers could not keep this car in a straight line”

        When Ford ‘bet the company’ on Taurus they brought in some of their overseas talent to improve handling. The ad from Jackie Stuart: ‘have you driven a Ford lately?’

        Which kind of admits they had a problem.

    • phusg
      Jun 27, 2018 at 12:12 pm

      Very fair of you to say so. Same thing with sugar tariffs and others.

      I’m all for level playing fields but what about the US dollars reserve currency status? Wouldn’t you agree that that’s been an underlying uneven playing field for decades, stacked against non-US citizens.

      • elysianfield
        Jun 28, 2018 at 11:55 am

        “Wouldn’t you agree that that’s been an underlying uneven playing field for decades, stacked against non-US citizens.”

        Exactly! And thank God it is/was. Life is fair only in Kindergarten, and quality of life is a zero-sum endeavor.

  3. PrG
    Jun 27, 2018 at 11:51 am

    Finally — instead of twits’ tweets, some real info. Thank you, Wolf.

  4. VarAway
    Jun 27, 2018 at 11:52 am

    Thank you Wolf, for this excellent & comprehensive article!
    Will forward this to my friends.

  5. Mch
    Jun 27, 2018 at 11:57 am

    Interesting comments on the objective of the tariff, wonder if that might have been the original intent of this entire effort. Somehow it seems strange for the government to try to rein in corporations. This also would go against the idea of having the most efficient allocation of capital… or transfer of wealth via trade.

    I doubt that would change pay in the C suite much though.

    • Kent
      Jun 27, 2018 at 12:07 pm

      “Somehow it seems strange for the government to try to rein in corporations.”

      You must be fairly young Mch. When I was young in the ’60’s and ’70’s it was expected. Corporations are government creations after all.

      • Mch
        Jun 27, 2018 at 1:15 pm

        I wasn’t alive in the 60s and didn’t have a concept of corporations in the 70s, too busy drooling.

        But given how dominant corporations have become, its time for the pendulum to swing the other way.

    • RD Blakeslee
      Jun 27, 2018 at 2:21 pm

      “Interesting comments on the objective of the tariff, wonder if that might have been the original intent of this entire effort.”

      That’s what the current occupant of the White House, who must remain nameless here, has been saying since the earliest days of his candidacy.

  6. MF
    Jun 27, 2018 at 12:01 pm

    Just putting tariffs on the table changes the game permanently, even if they are never enacted.

    Today’s strategic plan becomes tomorrow’s plants and equipment. The credible threat of tariffs forces it into risk analyses in a way that was unthinkable 3 years ago. Overseas expansion downside risk scores are already increasing as we speak.

  7. Jason
    Jun 27, 2018 at 12:12 pm

    Volvo just open a manufacturing plant in South Carolina to make the new 2019 S60.

  8. Ambrose Bierce
    Jun 27, 2018 at 12:40 pm

    Do tariffs contribute to Federal revenue, and instead of taxing these companies why not just subsidize US consumers to buy American made cars? Its like the question, is illegal immigration a victimless crime, and if there is a victim they should come forth and file charges (civil) against the immigrants? That’s not a rhetorical sleight when you consider the stated purpose of tariffs is to provide (inflated wage) jobs for American workers, who have lost purchasing power due to the governments policy of asset inflation. Seems more likely workers (unions) should litigate the US government, which is now going to take away the consumer subsidy which foreign offshoring provides and replace them with no or nonliving wage jobs? Or jobs for constituents in states loyal to the presidents party? Auto manufacturing is last centuries industry, the future is in silicon valley where RE values are off the map and a maid from Guatemala can do pretty well, better than an autoworker in Alabama probably.

  9. Kent
    Jun 27, 2018 at 12:41 pm

    I wonder how many car part manufacturer’s moved manufacturing to Mexico and China, and then sold the new plant to a 3rd party. I’m betting a lot. You get to off-load a lot of headaches, maybe get a contract to manage long-term costs, and you get a big check from the buyer.

    But you probably never figured on having to pay a tariff. And moving everything back maybe costs more over the short-term than just paying the tariff. I’m betting there would be just a lot of dead-weight losses to the feds. But maybe all of us paying more for stuff will help lower the budget deficit!

  10. Steve clayton
    Jun 27, 2018 at 12:54 pm

    Thanks Wolf, how wrong is that Europe put a 10% tariff on US vehicles and the US 2.5%. In that sense I agree with the concerns. Completely unfair. Regards Steve UK

    • Prairies
      Jun 27, 2018 at 2:09 pm

      It sounds so unfair until you add the other part of that trade deal where USA puts a 25% tariff on imported trucks. But what do I know about fair, I am a mean Canadian robbing Americans by buying shoes and making them sound old and look old. (for the record – I have never bought a shoe in the USA)

      • Emanon
        Jun 27, 2018 at 8:15 pm

        Shoes are usually made in a newly emerged foreign market with cheap labor, not the USA.

        You have to look around a bit to fins any of these brands:

        https://www.finder.com/made-in-usa-shoes

  11. Todd H.
    Jun 27, 2018 at 1:04 pm

    I am sure another factor involved in re-shoring manufacturing is the payroll tax receipts from domestic employees. They can’t tax employees in Mexico, Canada, Germany, Japan, or China. The solvency of the Social Security and Medicare programs are probably one of the top issues right now. Payroll tax rates have risen from what they once were, but there really isn’t any more room to raise them; right now they are at 15.3% on the first $125,000 or so.

    There is nothing a Congressman or Senator fears more than angry retirees who get their benefits cut. The harsh reality of jobs offshoring is finally coming home to roost.

    • JB
      Jun 27, 2018 at 2:57 pm

      good point, a company operates under the rules promulgated by government . the indirect costs/overhead of hiring employees is enormous in the US. As we entered a global market ,post WWII,these issues were never addressed and rules and regs were not adjusted for a global trade environment . if you were a US company and could increase your bottom line by moving production off shore would you not avail your self ? the US lost its competitive advantage , no amount of tariffs/sanctions will restore that. China wants cars sold in their country to be built in their country . Are we not promoting the same here ?

      • Al Jones
        Jun 28, 2018 at 7:13 am

        I find it very interesting that there are a number of people on this board who believe that government rules/taxes will save auto union jobs, when we all have experienced the unintended consequences of government rules and UAW activities.

        It probably won’t work out as the dreamers think.

        • Jun 28, 2018 at 1:47 pm

          Both sides have unintended consequences.

          When I grew up, even a grocery clerk was union, made decent money with benefits and a retirement plan, and could afford to raise a family in an apartment. Friends of mine had parents working in union tile jobs making pretty good money.

          I watched as union jobs disappeared and financial deregulation became the rule. M&A became the name of the game as companies started buying out their competition instead of competing.

          Over time benefits have been gutted and median incomes have stagnated in nominal terms. Now there is no way for an ordinary person to afford a decent place to live as a renter or buyer (I’m in Los Angeles) .

          The thing many forget today is that we aren’t living in a competitive economy with problems of dead-weight losses from otherwise competitive markets – we’re living in a monopolistic economy with considerable economic rents factored in. The only way to rein in monopolies is through added regulation, particularly when we’re stuck with an SEC which is more interested in rubber stamping mergers than breaking up behemoths.

          The trade unions arent blameless in this either BTW. Much of the reason that “right to work” legislation has been passing through like wildfire is because the unions became more interested in pushing unpopular Democrat social policies than in representing their own workers.

    • sierra7
      Jun 27, 2018 at 3:26 pm

      How about raising the “floor” to $1m or so (or more)????? Or, a fraction of a penny for every algorithmic stock transactions????
      It seems that “social contracts” are judged in a different court than corporate ones.
      Thx Mr. Richter for another good write.

      • Kent
        Jun 27, 2018 at 3:43 pm

        Agreed. The US worker has become vastly more productive over the last 40 years, but that new income didn’t show up in their paycheck. So raising the SS cap to account for that would have a significant impact on resolving future SS revenue issues.

        • CanadaGoose
          Jun 27, 2018 at 10:46 pm

          Wait robots will be assembling cars just like Tesla is trying to do with their model 3 but hey they did not bother to do a test run from what I heard.

          Congress is up to limiting the Pres power to act on the defense trade front. Trump will veto it if it ever gets passed.

      • Todd H.
        Jun 27, 2018 at 4:05 pm

        The fact that payroll and income tax are treated separately has always confused me. It is a legacy of the New Deal era but is irrelevant now.

        Regardless, it is probably easier politically to twist the arms of manufacturers to re-shore a few jobs than it would be to threaten the 1% with payroll taxes assessed on capital gains and the top 10% psuedo-elite striver class (lawyers, doctors, etc.) with payroll tax on all of their income.

  12. Lune
    Jun 27, 2018 at 1:25 pm

    I’m a Bernie Sanders liberal who loathes Trump but I fully support him in these tariffs, and his threats for more tariffs. Corporations can’t have it both ways: enjoying the largest market, with the richest customers, in the world, while taking the jobs somewhere else. Something has to give. It’s ironic that Reagan’s threats against Japanese automakers have now made most of the Japanese automakers more “American” than so-called American automakers.

    BTW, that doesn’t mean I support *all* of his tariffs: his proposed tariffs on steel are asinine. The point of tariffs is to reduce tariffs on raw materials, and increase tariffs on finished goods, so as to incentivize people to build more high-value mfg’ering in the country. Tariffs on raw materials like steel will exactly lead to things like Harley Davidson moving production outside. So you save 100 steel jobs, and you lose 1,000 jobs higher up the value chain. Stupid, stupid idea.

    • alex in san jose AKA digital Detroit
      Jun 27, 2018 at 4:56 pm

      But as the saying goes, Harleys have more Chinese parts than the Peking Opera.

      The engines are still made in the US I think, and the use of a Gates drive belt as opposed to a chain or a drive shaft is a neat innovation.

      I won’t miss ’em.

    • nick kelly
      Jun 29, 2018 at 9:00 pm

      Get used to the stupid. There is a whole lot more coming, as the stock market is beginning to figure out.

      The briefers were asked to condense their advisories for Trump.
      They did, to one page.
      Uh…still too long. “This President thinks visually. could you create graphics?”

      They did. The captions are reported to be along the lines of: ‘See Jane run’

      The good news: the Republican controlled Congress is trying to assert its right to enact tariffs, as per the US constitution. The Pres is bypassing Congress by, in effect, proclaiming an emergency and saying that Canadian imports constitute a threat to national security.

      The US auto industry has said: ‘Please don’t help us’ (like you did Harley Davidson) because that would be a REAL emergency.

  13. Setarcos
    Jun 27, 2018 at 1:26 pm

    Nice to see objective analysis instead of propoganda and fear mongering. Congrat’s on a job well done.

    I have observed offshoring that was actually marginally detrimental to actual production costs, but the calculus was that it is easier to defend a marginal decision to offshore vs defending state-side. Very tired of the state-side bloodbath.

  14. Augusto
    Jun 27, 2018 at 2:08 pm

    There is no way sellers are going to pass along the entire amount of any new tariff to the consumer. That would just hand their competitors a bigger slice of the market. In the end, the world needs the US market-there is only one US market, and they will dance to its tune. Heck the rest of the world is dancing to China’s 25% tariff and jobs/technology blackmail and it is a far less important market than the US. I think Wolf you should also remember VAT taxes are a subsidy as well. These taxes are charged on domestic production but not export production. They range from 10% to 25% if I recall depending on the country. So the US manufacturer is really behind the 8 ball here, although they has lower corporate taxes to deal with-if they make any money.

  15. Prairies
    Jun 27, 2018 at 2:29 pm

    Tariffmageddon should increase some jobs in USA, that is the goal. But with carmageddon in full effect will this increase in cost be able to be absorbed by companies relying on massive discounts to move the dead stock they have already. I would gladly downplay this issue if the auto sales were going along at a steady clip, but sales are dropping.

    The motorcycle side of motorists aren’t doing much better either, Harley closing one plant in the US and now having to figure out where to open one in the EU to counter the steel tariffs.

    Don’t forget that in a trade war tariffs are applied in both directions, they work great for negotiating until they are implemented. Then they become a dividing force which can strain the best of trade relationships.

    • Jun 27, 2018 at 3:47 pm

      Prairies,

      The execs at Harley are a bunch of lying bastards. They were doing layoffs in the US, shut down a plant in the US, and simultaneously opened plants overseas long before the tariffs were even discussed.

      They’re just now trying to hide behind the tariffs. This is from a year ago:

      https://wolfstreet.com/2017/07/18/harley-davidson-sales-layoffs-builds-plant-in-thailand-motorcycle-industry-sales/

      I almost wrote a whole article about it two days ago. Barely could restrain myself :-]

      • MCH
        Jun 27, 2018 at 5:19 pm

        The captains of industry lie???? Say it isn’t so, Wolf. You are shattering my entire world. :-) end sarcasm mode.

        I think part of this is logical since the car companies have been doing this for a while. I do wonder at what point of the value chain manufActuring locally breaks down though. And how much does it have to do with shipment costs vs just local know how and efficiencies.

      • Dan Romig
        Jun 27, 2018 at 5:19 pm

        Polaris makes their Indian brand motorbikes in Spirit Lake Iowa. Anybody thinking about a new Harley ought to give one of these a test ride.

        I like how you call it there Wolf!

        • True North
          Jun 30, 2018 at 9:10 am

          And Ford wants to stop producing cars, why, protectionist tariffs on trucks. The largest money maker for US automakers is trucks. Hypocritical. I am one of those nasty Canuks that owns a home in the USA. Spend $40,000 a year there. No NAFTA, continue tariffs, good-bye.

      • Prairies
        Jun 27, 2018 at 5:29 pm

        They were doing layoffs for profit margins. Not for workers.

        It’s not that I agree with them fleeing the country, I just know how corporations work from the last 2 decades of off shoring and wealth transfer.

        The tariffs will save a few jobs until the sales dry up. Can’t pay workers if the product doesn’t sell, kinda have to make money to pay bills.

        • jp
          Jun 28, 2018 at 12:48 pm

          The entire motorcycle industry, and Harley in particular, is struggling. Harley’s core demographic is aging out of the pastime and younger generations in the US are just not riding bikes as much as previous ones. Even when they do, they are opting for smaller, less expensive rides. This is what’s driving Harley’s experimentation with new designs. The company’s problems are much bigger than tariffs. And a quick look at the components that make up their bikes shows that their “made in America” mystique has been questionable for a long time.

      • Lion
        Jun 27, 2018 at 8:00 pm

        Think you’re a little soft on the Harley execs. Having had to turn offs the final lights for a company I worked for, I have little respect for management which does not value people.

      • Sadie
        Jun 29, 2018 at 12:04 pm

        Wolf, liked your article on HD, however, maybe you could go a little easier on the expletive you used in this article. Yes, what you said is true about HD.

        • Jun 29, 2018 at 2:00 pm

          These blatant, obvious, manipulative lies by corp execs really get to me. So I apologize. That slipped out in the heat of the moment ;-]

    • MC01
      Jun 28, 2018 at 2:46 am

      HD can afford to charge whatever price they want in Europe. Last time I checked prices were 25-30% higher than in the US and that’s before sales taxes. I won’t even get into spare parts and servicing.
      There’s a very good reason why HD’s are called “La moto de le dentiste” (“The dentist’s bike””) or similar names, the assumption being only very rich professionals can afford buying and especially maintaining them.
      And that’s a correct assumption because rugged types, the kind that would be called a biker in the US, generally ride what would be called “metric cruisers”, from Yamaha V-Max to that old staple, the Honda Shadow.
      I could go on relating many stories about the average European HD customer but I am in a hunch these days.

      Suffice to say like Chinese customers are ready and willing to pay a large extra for a made in Germany BMW 7-series, European customers are ready and willing to pay a large extra for a made in USA HD. Tariffs won’t stop them. The heat from the poorly designed radiators will. ;-)

      PS: Wolf, due to the aforementioned hunch I am about halfway through the next piece and it will be a few days before I’ll be finished with it. Just be patient in the meantime.

      • Jun 28, 2018 at 7:53 am

        Looking forward to it ;-)

  16. jon
    Jun 27, 2018 at 2:42 pm

    Thanks Wolf for this article.
    In essence, no POTUS except Trump has the balls to raise this unfair tariff issue which is going on for decades.

    Hope this helps average american workers.

  17. Lance Manly
    Jun 27, 2018 at 2:57 pm

    1. Your discussion on tariffs has valid points, but the way they are being implemented is through “national security” needs. In order to be justified they really should be run through Congress and enacted into law. Otherwise the short term aspect of the tariffs could overwhelm any long term benefits.

    2. Given #1, if you are a decision maker at an auto company are you going to put many hundreds of millions into reshaping your supply line when the underlying reason could be undone with the stroke of a pen? I doubt it.

    • Kent
      Jun 27, 2018 at 3:54 pm

      1. Congress is absolutely opposed to tariffs. Generally on both sides of the aisle.

      2. Absolutely right. Just put some extra money into the next guy running for Prez.

  18. IronForge
    Jun 27, 2018 at 4:10 pm

    I’m a 2nd Gen Navy Veteran who grew up in Japan. We used to have School Field Trips to the local Nissan Plant; and my Cousin was in MGMT of a Major Sub for Toyota.

    As much as I want JPN Automakers to succeed via merit, I have to take a stance supporting Tariffs here.

    The USA is pretty much at the Top of the Totem Pole when it comes to the combination of wages, costs of living, costs of doing business, costs of gasoline/diesel(relatively low per unit ; but we drive more/further) and costs of owning/operating cars.

    Tariffs should be supplemented with Incentives for Manufacturers to build and operate Plants in the USA for USA Markets – with USA built Parts making up the Majority.

    330 Million People and increasing. The USA cannot afford to outsource Jobs.

  19. Shawn
    Jun 27, 2018 at 4:55 pm

    I’m originally from Detroit and I’ve seen with my own eyes what NAFTA and offshoring to China have done to that city and the rest of the rust-belt. Though the UAW didn’t help much either. Need more proof, watch Micheal Moore’s, Capitalism: A Love Story (2009). Successive corrupt administrations have turned a blind eye to this economic catastrophe in the name of neo-liberal trade policies.

    • Harrold
      Jun 28, 2018 at 11:52 am

      If only those darn Unions would design better cars I might consider buying one.

      • Al Jones
        Jun 29, 2018 at 9:25 am

        I have have driven Fords and GM’s for over 40 years. My recent purchase is a Cadillac XTS and I love it. Traded in my 3.6L Impala, that was a trouble free car. I’ve also own some foreign cars that were no better, some worse.

        I have also worked in manufacturing and realize that offshoring isn’t just about wages. It’s local labor skills, local availability of enough labor, taxes – property and SS, local bylaws, absenteeism in the ingrained culture, the work ethic, transportation costs, etc. There are lots more moving parts behind the curtain then just wages.

        Tariffs are just government revenue, there is no rule that says the job market will be solved with a tax. We should be careful what we wish for.

  20. DK
    Jun 27, 2018 at 5:28 pm

    China in a bear market and currency taking a hit. Get enough devaluation and th tariffs may be nuetralized.

  21. EMHO
    Jun 27, 2018 at 5:33 pm

    Good Article as always. I just want to add a few details about the bilateral Trade agreement and its constituent tariffs agreed upon by the US and the EU in 1994.
    It is a comprehensive tariff agreement where the total tariffs levied average out at under 3%.
    http://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/
    For example, the EU levies a tariff of 12% on US textiles while the US levies are at 35% on EU imports!
    Another good link who want to research tariffs in deeper details is here.
    http://madb.europa.eu/madb/euTariffs.htm
    Enjoy. I am going to bed now.

  22. Erich
    Jun 27, 2018 at 5:54 pm

    It’s not China, Mexico or Canada that Trump is fighting with tariffs, it’s our own “American” corporations he’s fighting –

    ” When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.”

    https://www.paulcraigroberts.org/2018/06/26/long-can-federal-reserve-stave-off-inevitable-paul-craig-roberts/

    Forget the FBI/DOJ and the Democrats, it’s the corporations that will push to get rid of Trump.

  23. chris Hauser
    Jun 27, 2018 at 6:11 pm

    maybe trump does have master plan. i can see it unfolding every day.

    2021’s going to be interesting.

  24. Eric Ma
    Jun 27, 2018 at 7:57 pm

    The Tariffs would kill the Mazda Operation in US. Almost all the Mazda Vehicles are imported from Japan. Mazda won’t have their joint factory with Toyota until 2021.

  25. Marc D.
    Jun 27, 2018 at 8:28 pm

    Personally, I don’t have a problem with some auto plants being located in Canada or Mexico. It’s good for us if our two neighbors are doing well, too. And by the way, if they shut all the Mexican auto factories down, that would just increase unemployment there, which would likely lead to more of them trying to illegally immigrate here. Right now, Mexican illegal immigration is low (most of the current illegal immigrants are from Central America).

  26. Tobias Andersson
    Jun 28, 2018 at 2:53 am

    Volvo now has a plant in US as well (Charleston, SC). Start of production this fall.
    The brand new S60 is the first car out of the plant.

  27. philbq
    Jun 28, 2018 at 6:10 am

    I am a progressive Democrat who has never (and will never) vote for a Republican, but I support the auto tariffs. U.S. corporations have sold out this country and its workers. (Even though GM got a bailout from the U.S. taxpayers, they continue to move production to Mexico.) The tariffs would encourage car manufacturers to build cars here. That’s a good thing.

  28. Trena L Bristol
    Jun 28, 2018 at 10:44 pm

    I am not for any of this. I am fed up with an American Auto Industry that refuses to compete globally. Americans like to stay loyal to brands regardless of the brand’s actual quality or track record. Even when they themselves are having serious trouble. “Its under warranty” they say. My foreign cars have never needed a warranty repair and last over 150K miles without repairs. I had 4 cylinder Toyota truck that was faster than a V6 Ford Ranger (we raced). My next car is going to be a used Toyota . I will probably pay significantly more for it but American cars are pieces of crap. If course it does help you don’t drive around like in a stock car race

  29. Olivier
    Jun 29, 2018 at 9:02 am

    You are such a breath of fresh air.

  30. IronForge
    Jun 30, 2018 at 9:25 am

    I think I mentioned it here before:

    NAFTA is a Failed Scheme, since the Wage Disparities are severe.

    It could work if it were btwn the USA and CAN – with MEX grouped in a Trading Block with the Rest of the Americas.

    The Automakers are blowing smoke. Only USA and CAN have the Consumer Base Large Enough to sustain Mid-Range, Performance, Luxury, and SUV Product Offerings.

    These are some of the reasons why NAFTA needs to end and Auto Tariffs need to increase.

  31. jow bloe
    Jun 30, 2018 at 11:44 am

    “The purpose of tariffs is not to make products more expensive for consumers, though that can be a consequence. The purpose is to motivate manufacturers to invest and produce more in the US”

    The road to hell is paved with good intentions.

  32. jow bloe
    Jul 1, 2018 at 3:03 am

    “The purpose of tariffs is not to make products more expensive for consumers, though that can be a consequence.”

    And you are being disingenuous. Higher prices, both import and domestic, are the surest thing that will happen and what is uncertain (and unlikely in today’s age) is an overall benefit to the American economy. One has to be very pro trump to word it this way.

    • Jul 1, 2018 at 9:14 am

      jow bloe,

      You’re regurgitating Corporate America’s propaganda. You’re not looking at the facts as they exist in the auto industry. You’re just looking at it out of context as some kind of theoretical thing

      So here’s a dose of reality

      1. Prices are set by competition and by consumers’ willingness and ability to pay them, not by tariffs.

      2. Therefore, tariffs lead to lower PROFIT MARGINS for automakers that import those models. But tariffs won’t lead to lower profit margins for automakers that don’t import those models. So this will motivate companies to bring production to the US.

      3. That’s why GM hates these tariffs. If GM tries to pass the tariffs on to customers by raising prices on cars it builds in Mexico, and Honda doesn’t raise prices on cars it builds in the US, GM’s car sales in the US are going to collapse further, until it cuts prices to be competitive with automakers that are already building cars in the US.

      4. To be competitive with automakers that produce this type of car in the US, GM has two options:
      — eat the tariff and give up its profit margin or
      — change its supply chains to produce more in the US.

      5. NO ONE is going to pay $5,000 more for a Chevy just because of tariffs. NO ONE will buy that Chevy. That’s just a simple fact.

      6. Prices in the auto industry are set by competition, and this includes companies that already produce in the US, which this is big time the case in the auto industry, as I pointed out in the article.

      • Sadie
        Jul 6, 2018 at 12:43 pm

        Wolf: Maybe the U.S. should make all tariffs reciprocal i.e., China’s recently reduced proposal to 15% then we should match them at 15%. Also, it looks like Europe is now willing to negotiate.

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