Uncertainty looms for autos | Michigan Radio
WUOMFM

Uncertainty looms for autos

Jul 7, 2018

By this time, the long-running auto boom was supposed to be coming to an end.

Credit Daniel Howes / Detroit News

Quick, someone tell that to the truck and SUV buyers who powered the annual selling rate last month to 17.5 million vehicles. That’s according to a Morgan Stanley estimate. If that’s evidence of a slowdown, Detroit and its foreign-owned rivals would like more of the same, please.

With apologies to the ol’ Clinton war room, “It’s the economy, stupid.” Low unemployment and a buoyant job market, still-cheap credit and a vehicle fleet averaging 11 years old, keep extending the streak. It’s the longest-running one since Detroit’s Golden Age in the 1960s. Tax cuts helped, too.

But complications loom. President Donald Trump’s proposed policy shifts on trade and emissions rules imperil the industry’s momentum. They could end the industry’s job creation and spoil the alleged love affair between the president and the industrial heartland that got him elected.

Turmoil like this begets uncertainty – exactly what business doesn’t want. Business craves certainty because it makes long-term investment decisions. But the administration’s policy gyrations on steel tariffs, on levies for imported vehicles and parts, deliver nothing but uncertainty.

That’s not good – no matter who is president. Business leaders, financial markets and foreign governments hate unpredictable decision-making. But that’s precisely the style Trump has brought to the Oval Office – and delivered with mixed results.

It’s also the reality the world’s automakers must manage.

However…

Trump’s trade worldview highlights a point too often dismissed by traditionalists who back the post-World War II consensus on global trade. And it’s this: Times have changed. The U.S.-backed Marshall Plan that helped former enemies like Germany and Japan rebuild their economies is long gone – even if some of the assumptions behind it remain.

Germany is the undisputed economic powerhouse of the European Union. Japan’s automakers a generation ago throttled their Detroit rivals, and foreign brands now claim 55% of the rich U.S. market. China’s economy is second only to the United States.

In the Trumpian worldview, it doesn’t matter that European car buyers simply are not clamoring to buy more American-made vehicles. What matters is that German, Swedish and British models bound for the U.S. are assessed a 2.5% tariff … and American metal gets hit four times higher at 10%.

Doesn’t matter that a company like General Motors built four million cars last year in China. What matters is that Chinese-built vehicles sent to the U.S. carry a 2.5% tariff … and American-built vehicles bound for China pay a 15% levy … reduced in May from 25%.

Look, with government-mandated plans to dominate a dozen global industries by 2025, can China credibly be considered a “developing” economy? The sensible answer is, of course, no.

That’s why Trump’s tariffs enjoy more than token support – at least until their unintended consequences bite more deeply into autos and agriculture, Harley-Davidson motorcycles and Kentucky bourbon distillers.

We don’t yet know whether Trump’s trade tactics and emissions roll-backs will, quote, “help” the auto industry. But automakers are learning their road to prosperity is littered with bumps and uncertainty. It’s the new normal.

Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.