- Trump’s tariff’s on steel and aluminium could raise the prices of vehicles that his voters like to buy.
- Ford pickups, which use a lot of aluminium in their construction, could cost more.
- However, the auto industry might take the tariffs in stride and eat the higher commodity costs.
On Thursday, the Trump administration announced a tariff on imported steel and aluminium, signalling a willingness to start a trade war so that that the President could keep a campaign promise.
The response from US steel- and aluminium makers was swift and positive, although it’s worth noting that the aluminium industry in the country has been in steady retreat since 1980.
Automakers who use a lot of steel and aluminium in their vehicles were either quiet or diplomatic, even as slower February sales compared to a year ago and the Trump announcement send the entire sector’s stock prices into decline.
“We purchase over 90% of our steel for US production from US suppliers,” General Motor said in an emailed statement to Business Insider.
“We need to better understand the details around the announcement today, but the bottom line is we support trade policies that enable US manufacturers to win and grow jobs in the US, and at the same time succeed in global markets. Over the last several years, we have shown we are a disciplined company with the ability to adjust and adapt to a variety of market changes around the world, and we’ll do that again as needed.”
Ford also said that it buys much of its raw materials domestically for US production, but added that higher steel and aluminium costs could hurt the competitiveness of US companies,CNBC’s Phil LeBeau reported.
Trying to understand Trump tariffs
The automaker has shifted to using more lightweight aluminium in its bestselling, highly profitable F-Series pickup trucks. Shedding weight helps the company meet more stringent federal fuel-economy standards.
Tesla’s pricey luxury vehicles, the Model S sedan and Model X SUV, use a lot of aluminium in their construction, but the company declined to comment on the tariff, which would be 10%. (Steel would be 25%.)
Carmakers aren’t in the dark about changes to commodity pricing. Earlier this year, Ford CFO Bob Shanks said that the company was preparing to for higher commodity costs to hit its bottom line.
Additionally, the industry in the US as a whole had been girding for a Trump border tax in 2017. The expectation at the time, according to various sources, was that a continued strong economy coupled with a corporate tax cut would even everything out.
Trump tariffs are the new border tax
In that context, the tariffs are the new border tax. It will now be up to automakers to determine whether they should absorb the higher cost or pass it on to consumers.
The latter could be more likely because as sales have plateaued in the US, transaction prices have moved up. A better economy has meant that more people can afford to pony up more money for well-optioned vehicles. Extended loan terms and low-interest rates have also helped.
Barring an economic shock, automakers should be able to ask for more from customers.
Of course, for reliable Ford pickup truck buyers concentrated in states that Trump carried in 2016, tariffs could simply mean a costlier set of wheels. The idea is that steel and aluminium manufacturers will pay Trump back with hiring. Tariffs might have some effect on the steel business, but on aluminium, it’s improbable. There are just two operational smelters in the entire country; over half of the US supply is imported.
It remains to be seen whether the tariffs will actually hurt the automakers’ business; it’s possible that they will take them in stride.
But there are signs that 2018 in the year that booming US auto sales will cool off, after a three-year run. The market won’t tank, but car companies could go into a defensive mode. For Trump, this means that layoffs of autoworkers could replace hiring, and new factories will be put on hold. Investment driven by the tax cut won’t happen because it will have to used to pay for more expensive raw materials.
But during the presidential campaign and into his first year in office, Trump has shown little understanding of the global auto industry. So it shouldn’t be a surprise that, although he needs Detroit to invest and hire in critical 2020 election states such as Michigan and Ohio, he’s doing exactly the opposite of what the industry needs – and maybe even raising the price on that new pickup a voter has been planning to spend his tax-cut money on.