In theory, the higher car prices and weaker auto profits that are likely to result from higher tariffs are meant to be ‘transitory.’ In theory.
Central planners, such as those trying to design an industrial policy, are not known for their ability to think everything through. That’s not always their fault. Life is complicated, business is complicated. What is their fault is their belief, let’s call it their fatal conceit, that they can think everything through.
Even so, there are occasions when not too much thinking goes on, either.
Here’s an example provided by the central planners currently building this country’s tariff wall. Before “liberation day,” tariffs on cars imported from the EU and Japan were charged at a rate of 2.5 percent. Now, those tariffs will be 15 percent, a lot higher than before, but less than the 25 percent levied since earlier this year.
But U.S.-based carmakers don’t seem to be too pleased.
U.S.-built cars . . . are taxed 25% on imported parts (except for those that comply with the U.S.-Mexico-Canada trade agreement signed by Trump in his first term). That applies not just to the Detroit 3 carmakers but also to foreign automakers with U.S. plants.
Not only that, U.S.-based carmakers must pay 50 percent tariffs on imported aluminum and steel.
Wait, there’s more:
Cars built in Canada and Mexico, already taxed at 25%, face even higher tariffs beginning Friday. For Canada, the new rate would be 35%; for Mexico, 30%. Many companies build vehicles in Canada or Mexico and ship them to the U.S.
Axios quotes speculation that import tariffs for autos from Canada and Mexico will come down to a lower level than those imported from elsewhere, maybe to 7.5 percent, but who knows?
Meanwhile (also via Axios):
A growing share of car owners find themselves underwater on their auto loans, and they are dragging that debt into their next vehicle purchase, according to new data from the car-shopping site Edmunds.com.
Why it matters: High car prices and steep loan rates have combined to create an affordability crisis for U.S. car buyers already under broad financial stress. When car buyers roll up debt owed on their trade-in into the purchase of their next vehicle, they can really get into trouble.
In theory, the higher car prices and/or weaker auto profits that are likely to result from these higher tariffs are meant, to borrow a once popular word, to be “transitory,” lasting only as long as it takes the car industry to move production to the U.S.
In theory.
And even true believers ought to concede that shift may take a while. Announcing an investment is one thing, completing it quite another.
Meanwhile, the UAW, which has been supportive of Trump’s approach to tariffs, is not satisfied:
“U.S. trade policy should push automakers to build in America, with skilled union labor. A flat 15% tariff doesn’t accomplish that.”
One of the features, for the political class, of a protectionist regime is the way that it can help in the process of building a clientelist regime by giving it something else to “sell.” Company X asks for special treatment here, Union Y requests a tweak to the rules there. Certain “clients,” however, can be too important to ignore, especially as, say, midterms draw closer, raising interesting questions about who really is setting policy.