President Trump last week conceded that his border taxes are economically damaging by softening the blow for auto makers. Or as he put it in a Michigan speech, believe it or not: “We gave them a little time before we slaughter them.” His latest tariff exemptions stay the industry’s execution, but why is the President lining up businesses for slaughter down the road?
The President’s 25% tariffs on autos took effect in early April, but the tax on parts was delayed until Saturday. Perhaps that’s because even the Administration is still trying to figure out how to apply the tariffs without denting the U.S. auto industry. Hint: It’s not possible.
Mr. Trump’s original auto tariff order exempted U.S. content in foreign cars. It also provided a temporary dispensation for parts imported under the USMCA trade agreement until the Administration “establishes a process to apply the tariff exclusively to the value of the non-U.S. content of such automobile parts.” This was a concession that Canadian- and Mexican-made parts include components and materials made in the U.S. Last week came more concessions, if you can call them that.
Under the President’s earlier auto order, it wasn’t clear if the 25% tariffs on steel and aluminum would apply to a part’s steel and aluminum content. The Administration last week clarified that the 25% duties on foreign steel and aluminum won’t be “stacked” on top of the 25% tariffs on auto parts, so at least in this case there won’t be double taxation. Phew.
The Administration will also let manufacturers of U.S.-assembled cars apply for a rebate equal to 3.75% of their retail price for one year and 2.5% the next year to offset their tariff costs for parts. Such rebates will mitigate the tariff pain for a year or two, and more so for gas-powered trucks and SUVs with higher retail prices and margins. General Motors, Ford Motor and Stellantis will likely benefit more than European, Japanese and South Korean auto makers, which import more cars and parts.
The Anderson Economic Group estimates the rebates will reduce the tariff cost on a Ford Explorer made in Illinois to $2,400 from about $4,300. The tariff cost on a Chevrolet Suburban assembled in Texas will fall to just under $8,000 from more than $11,000. Ford’s Mach-E produced in Mexico will still get slapped with more than $12,000 in tariffs.
Auto makers may absorb some of the tariffs, which will reduce profit-sharing bonuses for union workers. GM last week said the tariffs will add some $4 billion to $5 billion in additional costs this year. The companies will invariably pass along some of those costs to consumers, to the extent they can. If consumers pull back, they may cut production, as many are already doing.
U.S. auto executives praised the President’s tariff relief, no doubt hoping to coax more. “We believe the President’s leadership is helping level the playing field for companies like G.M. and allowing us to invest even more in the U.S. economy,” GM CEO Mary Barra said Tuesday. As a hostage to tariffs, Ms. Barra has little choice but to curry favor.
But the auto exemptions are only a reprieve as long as Mr. Trump deems. If the companies don’t follow his orders about where to build their cars, they could be slaughtered.
