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Tariffs may wind up hurting Trump voters most of all, warn automakers

by Paul A. Eisenstein /
Image: Trump and Chao talk with auto industry leaders at the American Center for Mobility in Ypsilanti Township
President Donald Trump and Transportation Secretary Elaine Chao sit down to talk with auto industry leaders, including General Motors CEO Mary Barra, United Auto Workers President Dennis Williams and Ford CEO Mark Fields, at the American Center for Mobility in Ypsilanti Township, Michigan, on March 15, 2017.Jonathan Ernst / Reuters

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In a move President Donald Trump says is meant to fulfill a campaign promise and increase American jobs, foreign steel and aluminum producers will soon face hefty new tariffs — but some fear the move could quickly backfire and hurt precisely those who supported candidate Trump, especially workers in the U.S. auto industry.

With exceptions temporarily carved out for Canada and Mexico, steel imports will now face 25 percent tariffs, while aluminum will be subject to new 10 percent duties. Earlier in the week, Commerce Secretary Wilbur Ross tried to downplay the impact. But, considering the amount of steel and aluminum in a typical vehicle, prices for cars could go up by hundreds of dollars, analysts warn.

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“This could backfire tremendously,” warned automotive analyst David Sullivan of AutoPacific, especially at a time when the auto industry is already showing signs of weakening sales that could result in lower profits and more job cuts.

Sullivan called the president’s tariffs plan “a very tone deaf move that could negatively impact a lot of workers,” many of which voted for Trump in 2016 in critical swing states like Michigan and Pennsylvania, as well as more solid Republican states such as South Carolina and Alabama that have become major automotive manufacturing centers.

The exact impact of the new tariffs on the auto industry is unclear, in part because there are so many different sources of parts and components that go into the typical vehicle. Manufacturers and their suppliers are trying to figure the precise cost, said Joe Phillippi, head of AutoTrends Consulting, but he estimates it will be $200 to $300 a car. Some have put the figure significantly higher, and the number could vary widely by manufacturer.

Related: Trump's new tax plan might just make your new car more expensive

Automakers and auto trade groups that have generally stood behind the president, or at least remained relatively quiet about prior issues of concern, were more open in criticizing the tariff plans.

The move “could result in an increase in domestic commodity prices — harming the competitiveness of American manufacturers,” said Ford before Trump made the tariffs official on Thursday.

The Motor & Equipment Manufacturers Association, a trade group representing industry parts and components suppliers, warned that many of the 800,000 U.S. jobs its members create could be at risk.

"Tariffs are taxes, and the American taxpayer will pay the cost of a trade war," said Cody Lusk, President and CEO of the American International Automobile Dealers Association, which represents import retailers for companies like Toyota and Volkswagen who employ over 500,000 dealer staff. "Even with limited exemptions, tariffs will raise the sale prices of new vehicles, turning off price-sensitive consumers and leading to a dip in both auto sales and auto-related jobs."

The U.S. auto industry took a slight tumble during Trump’s first year in office after rebounding from the worst downturn since the Great Depression to set a series of all-time records under President Barack Obama. Before his successor raised the threat of tariffs, manufacturers already were preparing for another modest decline in 2018. They’ve been trying to rein in prices that have surged sharply in recent years, pushing lower-cost leases and increasing rebates and other incentives to levels not seen since the “Great Recession” that began the decade.

"The American taxpayer will pay the cost of a trade war."

But analysts like Sullivan and Phillippi warn that manufacturers have to be cautious in how far they take those givebacks to avoid repeating the moves that nearly crushed the auto industry a decade ago, leading to the bankruptcies of Chrysler and General Motors — moves that ultimately cost taxpayers tens of billions of dollars to rescue.

Over the past year, manufacturers, especially those based in Detroit, have had to cut production a number of times, idling thousands of workers — though some of the moves were temporary, and meant to switch over plants from slow-selling sedans to hot new SUVs.

Any slowdown in sales, industry leaders warn, could bring on further, and longer-term, cuts — ironically, among the same autoworkers who voted heavily for candidate Trump in November 2016.

Another irony is that by raising vehicle prices new tariffs could actually worsen the U.S. trade deficit by making American auto exports more costly.

In recent years, automotive exports have actually been on the rise, with foreign brands leading the charge. About 237,000 of 371,000 vehicles BMW produced at its Spartanburg, South Carolina plant last year were shipped abroad, making it the nation’s largest auto exporter. Honda and Mercedes-Benz have been expanding their auto exports from Southern plants, and Volvo has expected to use its soon-to-open S.C. plant as an export base.

Any slowdown in sales could bring on labor cuts — ironically, among the same autoworkers who voted heavily for candidate Trump.

Those plants, in deep red states, have added thousands of jobs that might now also be at risk.

One industry leader who appeared to back the tariffs was Tesla CEO Elon Musk. "I am against import duties in general, but the current rules make things very difficult" he tweeted Thursday. "It's like competing in an Olympic race wearing lead shoes.”

If anything, wrote Musk, the president should take even tougher actions against China — which itself has unfair trade rules for foreign manufacturers trying to operate in its market, noted Musk.

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