Trump's threats to GM could end up backfiring spectacularly

Win McNamee/Getty ImagesPresident Donald Trump.
  • General Motors announced on Monday that it would lay off thousands of employees and idle four US plants.
  • President Donald Trump is not happy with that decision.
  • Trump’s policies weren’t the main reason for GM’s move, but they probably helped push the automaker toward the decision.
  • Trump’s proposed responses to GM’s decision – cutting subsidies and imposing auto tariffs – would most likely make things worse.

President Donald Trump’s latest threats to get back at General Motors could end up doing the exact opposite of what he wants.

Since GM announced on Monday that it would lay off roughly 15,000 workers and idle four factories in the US, Trump has attempted to bully and badger the US automaker into sticking around. But the president’s tactics could make GM – and other companies like it – more likely to get out.

Trump probably helped make GM’s call easier

Trump’s policy goals may have helped contribute to GM’s decision. Neil Dutta, the head of US economics at Renaissance Macro, laid out the reasons in an email on Tuesday:

  • “Trump wants to boost auto manufacturing. He wants low gas prices.”
  • “He has seen relative low gas prices through most of his tenure (even lower now).”
  • “That has slowly made cars like the Volt and Cruze pointless to buy. Auto manufacturing gets hurt.”

While the decision to close the plants appears more related to the industry trends and consumer demand, experts told Business Insider that Trump’s tariffs on steel and aluminium – which GM says have helped drive up its costs by $US1 billion this year – most likely accelerated GM’s timeframe.

In response, Trump could try to make it more economically viable for GM to continue to produce cars or other vehicles in the US to stem the layoffs and prevent further losses. But the president is threatening to do the exact opposite.

Subsidy cut, tariff threats would backfire

Trump has floated two ideas to punish GM and encourage more US auto production:

  • Trump said in a tweet on Tuesday that his administration was “looking at cutting all @GM subsidies, including for electric cars.”
  • He said Wednesday that GM’s decision had prompted him to think about imposing tariffs on imported cars, trucks, and auto parts.

Economists say both would backfire.

It’s unclear exactly what subsidies Trump was referring to in his tweet, but most think he was talking about the electric-vehicle tax credit, which gives a $US7,000 break to anyone who buys an electric vehicle.

As Business Insider’s Matthew DeBord pointed out, the threat to cut the EV credit is essentially meaningless to GM, since the credit already set to expire within the next two years.

But if Trump scraps the subsidy for all manufacturers to spite GM, it would cause electric cars from other companies to become more expensive – and most likely end up hurting auto manufacturing in the US, Dutta said.

“It’s the classic Trump thing of policies he supports working against goals he also supports,” Dutta added.


Read more:
Trump’s threat to impose a ‘chicken tax’ on cars could cause a major mess for the US economy

The other idea, higher auto tariffs, would also be likely to backfire. Studies have found that a 25% tariff on all cars, trucks, and auto parts coming into the US would result in a net loss of US jobs, lower car production in the US, the offshoring of car manufacturing, and a substantial hit to the US economy.

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