Businesses breathed a sigh of relief after President Trump gave Mexico and Canada a 30-day reprieve from his threatened 25% tariffs. But on Monday he said he is “going forward” with the tariffs next week. If the goal is to harm U.S. auto workers and Republican prospects in Michigan, then by all means go ahead, Mr. President.
Ford Motor CEO Jim Farley warned this month that Mr. Trump’s threatened tariffs would “blow a hole” in the U.S. auto industry, and that’s more than self-interest talking. American auto plants rely on parts made in Canada and Mexico, some of which include U.S. content. A new analysis by the Anderson Economic Group examines the potential tariff damage.
Start with auto prices. The study estimates that a 25% tariff on the U.S. neighbors would increase the cost of a full-size SUV assembled in North America by $9,000 and a pickup truck by $8,000. The cost of an electric-vehicle cross-over would increase by $12,200. Canada is the biggest supplier to the U.S. of nickel, a key critical mineral in lithium-ion batteries.
Such higher prices owe partly to the compounding effects of tariffs on auto parts that sometimes cross the border multiple times.
Mexico exports some $136 billion of vehicles and parts to such auto-manufacturing states as Michigan ($53.8 billion), Texas ($26.9 billion), Tennessee ($8.1 billion), Ohio ($2.4 billion), South Carolina ($2.2 billion) and Alabama ($1.8 billion).
Canada exports $50.4 billion in vehicles and parts, with large amounts going to Michigan ($22.1 billion) and Texas ($14.8 billion).
Mr. Trump says tariffs will force auto makers to make more cars in the U.S. Not likely, and that would take time in any case. Domestic demand for some vehicle models — especially sedans — isn’t sufficient to justify the cost of building new U.S. factories. Auto makers will have to absorb the tariff, increase prices on cars, or stop selling some models because they are too expensive.
U.S. auto workers will pay, too, if auto sales drop as a result of higher prices. Note that new U.S. vehicle sales last year were about 1.2 million lower than in 2019, largely because inflation and higher interest rates have made cars less affordable. One result is that U.S. plants produced 340,000 fewer cars last year than in 2019.
There are about 17,000 fewer U.S. workers employed in motor vehicles and parts than there were six years ago. Average weekly hours worked in the industry have fallen. The President can’t blame imports, which have fallen even more than U.S. car production.
The Anderson study notes that cars made in Asia and Europe would have a significant cost advantage if Mr. Trump follows through with his 25% tariffs on Mexico and Canada. This may be why Mr. Trump last week threatened an across-the-board 25% tariff on all foreign cars, which would bring its own problems.
Mr. Trump overlooks that America’s tariff-free trade with Mexico and Canada has made the U.S. auto industry more globally competitive and cars more affordable so more Americans can own them. This has helped American workers. His tariffs will do the opposite.
More than autos, the Trump tariffs will also add to the economic uncertainty that has seeped into financial markets. Growth is slowing as inflation has popped back up, the budget and tax bill faces an uncertain path in Congress, and consumers and investors wonder how far Mr. Trump will go with tariffs.
The President may think tariffs will yield a new economic golden age, but workers, businesses and financial markets may not enjoy the long march to this promised land.
