Given the frenzy right now, you couldn’t be blamed if you think Donald Trump has just been elected Supreme Emperor Of The World, and given some of the automotive press reaction to plans of “The Donald” to do with the industry, I think it’s time that someone injected a little rational thinking into things.
Unfortunately all the rational people I know are currently looking for new homes in Canada right now, so I’ll have a go instead.
I’m also aware this isn’t the most exciting subject in the world and “Oh My God He’s Going To Destroy Everything” makes for more captivating reading, so I’ll do my best to stop you hitting the back button by using pictures of kittens driving cars to break things up.
There are two things being being talked about: A 35% tax on cars built by U.S companies in Mexico then imported into the U.S (great piece here on Jalopnik) and reversing all U.S emissions legislation for cars ( great piece here on CarThrottle).
I’m still looking into and researching the emissions and EPA side of things, so for now let’s look at the reality of the idea he can tax cars being imported from Mexico by 35%, thus increasing the prices of small cars by around $5000 per unit.
“Absolutely illegal,” - Robert E. Scott, director of trade and manufacturing research at the Economic Policy Institute and a strong critic of past trade agreements like NAFTA when asked about Trump’s import taxes.
Basically, to impose the tariff he would have to terminate NAFTA (the North American Trade Agreement) which trade experts from across the political spectrum warn that most of his threatened tariffs would violate decades of binding trade deals negotiated by previous administrations and agreed to by previous Congresses.
Put simply, there is no obvious mechanism in international law to compel Mexico to pay for a border fence let alone impose new tariffs on cars.
If that isn’t enough to quell fears, Trump isn’t just talking about tariffs in relation to his weird and ignorant obsession with Ford making small cars in Mexico, he’s talking about also raising tariffs for other countries including China. This is in step with old school partisan politics from the early 19th and 20th century when Republicans championed high tariffs to protect businesses from competition. It was a fundamental split in the parties until after World War 2 when the U.S. led international talks to lower tariffs around the world that had been widely blamed for worsening the Great Depression.
So, on top of the legal issues is the fact the Republican party as a whole isn’t that big a fan of Trump.
As of this election the Republicans also hold both the house and the senate so they have will control over national legislation. The Republican party platform itself runs heavily on the idea of freeing up businesses from taxes, oversight and regulation and will seek to control things that will damage their interests.
If Trump refused to back down, other world leaders would then be free to raise their own tariffs in retaliation and setting the stage for a trade war that could strain foreign relations and depress American exports.
Putting it mildly, that’s something that would damage the Republican party irrevocably and give every reason for them to stop it from happening.
For more reading on tariffs effecting the auto industry, see also: Has the Chicken Tax Come Home to Roost?