Even if the Trump administration won’t listen to Canadian Foreign Affairs Minister Chrystia Freeland on the advantages of the North American Free Trade Agreement, maybe screams of protest from their own industry groups will wake them up to the dangers of protectionism.
The issue on the table at today’s hearings in Washington is whether imported cars are a national security threat — and therefore worthy of U.S. President Donald Trump’s proposed 25 per cent import duty on cars and auto parts.
As you would expect, representatives of Canada and Mexico were on the agenda to speak.
But some of the loudest voices are coming from U.S. businesses terrified of becoming the next victims of Trump’s infamous comment from earlier this year: “Trade wars are good, and easy to win.”
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
Not so easy
Under the banner of Alliance of Automotive Manufacturers, the country’s auto-sector members penned an open missive — “A letter to President Trump from the auto sector” — in advance of the hearings.
“We have come together as a united U.S. auto industry — domestic and international automobile manufacturers, suppliers, dealers and auto care businesses — to urge your administration to achieve fair trade through policies that won’t jeopardize American jobs, our economy or U.S. technological leadership,” read the rare joint statement.
As proponents of the protectionist plan insist, the intent of tariffs, such as those already in place on steel and aluminum, is to benefit American industries and workers.
But the recent round of steel and aluminum tariffs imposed by the Trump administration haven’t exactly worked out as advertised. Tariffs on uranium — threatened just yesterday — could have similar effects.
Like many of Trump’s schemes, from the Mexican wall to the recent closed-door talks with Russia’s Vladimir Putin, it’s as if the whole protectionist process has not been properly thought through.
To its proponents, tariffs scare off foreign competition and allow domestic producers of those same goods to prosper. But there are flaws in the argument.
One flaw is that while individual producers of U.S. steel, aluminum or uranium may benefit as the tariffs push the price of foreign goods up, those benefits are dwarfed by the costs imposed on other companies or industries facing shortages or increased prices on essential ingredients.
Domestic U.S. manufacturers don’t produce enough to replace the now-tariffed imports and their costs are much higher.
Firms that take cheaper foreign steel and transform it into value-added products with their own sophisticated technology have been hurt. Other examples include layoffs by a U.S. nail manufacturer and the U.S. beer industry hit by the rising costs of aluminum cans.
There’s the old joke where the kid on the playground tells his teacher that “it all started when he hit me back.”
The second flaw in Trump’s protectionist strategy is that when he hits his trade partners, he seems to think they are just going to stand there and take it.
Europe didn’t; they hit back. And that’s why companies like Harley-Davidson have been forced to move jobs abroad.
China didn’t. And that’s why one U.S. senator at congressional hearings this week complained American soy and corn farmers are earning less that it costs them to grow their crops as customers look elsewhere for their exports.
Despite falling feed costs, U.S. pork producers are also considering moving production outside of the country.
In the case of the auto sector, there are special considerations, especially in the highly integrated North American industry, where parts cross borders as if they weren’t even there.
The U.S. industry group is clearly worried about the impact of a tariff plan that would tear those trade patterns apart, forcing members to find new domestic suppliers and raise prices to cover the additional costs.
“Raising tariffs on autos and auto parts would be a massive tax on consumers who buy or service their vehicles — whether imported or domestically produced,” their letter said.
“These higher costs will inevitably lead to declining sales and the loss of American jobs, as well as increasing vehicle service and repair costs that may result in consumers delaying critical vehicle maintenance.”
Of course that’s not all.
The global footprint of the U.S. auto industry is huge. And while few cars from China make it into the United States, companies like Ford and General Motors do manufacture and sell their brands in China.
A new study conducted for the Financial Times has put some new details behind that threat, finding that “54 per cent of 2,000 respondents in 300 cities across China would ‘probably’ or ‘definitely’ stop buying U.S.-branded goods” in the event of a trade war.
The U.S. Chamber of Commerce has also spoken out against the tariffs, and the International Monetary Fund has said a growing trade war will cost the global economy hundreds of billions of dollars.
According to industry experts like Flavio Volpe, a spokesperson for Canada’s auto-parts makers, even if the North American sector could eventually adjust to new sources and new supply lines, the threatened tariffs could drag a whole swath of American car-producing states into recession.
“A 25 per cent tariff on cars from Canada into the U.S. — and then presumably a counter-tariff on cars from the U.S. into Canada — would grind the industry to a halt,” he said.
Follow Don on Twitter: @don_pittis