Originally published at: Trump imposes 25% import tariffs on autos made outside US - FreightWaves
President Trump said he will impose 25% duties on all cars and trucks assembled outside the country, including American brands.
All for it (tariffs). This is my favorite part about Trump’s presidency; both last term and current. @Freightalley would be nice to see a little more critical analysis, in all tariff articles. What percent of auto RETAIL cost is labor? Guessing, with the GM Sivlerado’s etc made in MX, that the labor is not even 10% of the retail price at dealers in the US. When a Chev Tahoe sells here for $80K; I doubt that GM has paid even $8K for labor; all parts and ass’y. AT MX wages of around $6/hr; that would imply 1333 total human labor hours / vehicle (all parts and final ass’y). With todays automation ; there is NO way that the total human hours / auto are even half of this 1333. The more valuable the vehicle (Tahoe / F150 / Ram etc); the smarter it is to move this manufacturing back to the US ; incl engines / transmissions etc. I LOVE this. Cheap cars might be a wash; paying tariffs vs cheaper labor. But we readers need critical analysis, please. Would love to see you hire Robert Lighthizer to add essential info. I don’t know him; getting nothing $ for recommending. He would know exactly how many hours / which vehicle; incl parts and final ass’y. For above Tahoe example (good one for me; we own one; and it has been an excellent car): $80K retail . Assume $70K wholesale; until we get info from you. AT 25% tariffs (wholesale value); this add’s $17,500 to wholesale cost , when you add that $17,500 tariff per vehicle (25% X 70K); which makes “made in MX” a loser. Won’t work at all. Trump KNOWS this LOL. If, say 300 human hours per total vehicle (parts mfg, final assembly, etc); the difference is : $1800K in MX (based on $6/hr and no pensions etc) VS $12K here in US (300 human hrs X $40/hr). So, if it’s 300 human hours / Tahoe; it’s cheaper to make it here; where you pay $10K more for labor; but avoid paying the $17,500 tariffs. I’m sure Trump calculated this perfectly; where the tariff cost is just slightly higher vs US labor. LOL, I love it. But , please get us real #'s to plug in. Here’s a link that shows much less hours per vehicle , incl engines & parts; which would have human hours / auto at around 50 hours. If this is still true (but probably even less with today’s automation ); it is no brainer to make in USA vs pay tariffs : Closing the productivity gap.
There are lots of nuances to think about with Trump’s tariffs.
A. Without any need to think; it’s an obvious wealth transfer both to 1) The US from other countries 2) The US working class from the ownership class. This is good, on both counts. The ownership class is not even 5% of Trump’s voters; Trump doesn’t care about these vs US workers (like Teddy Rosevelt… .lots of good similarity).
B. The tariffs will add about $1400/ average car, made in USA; due to all the imported parts; for now; so this is inflationary. BUT, this will simultaneously drive up wages, fast, for US workers. People are not going to want to work in Walmart, etc, for $12/hr when they can work at GM USA for $40/hr; so this will drive up wages for the working classs, IMO, by 30% minimum , by two years from now or less. This adds vast value to the US economy; as this is the "spending " class that drives our economy ; and now what is spent , stays here; via “made in USA.” which has drastically good impact. The wage growth will more than outweigh the inflation; workers earn an extra $500/week; yet only buy that slightly more expensive car; every 5 years. Works come out way ahead; so does our US economy.
C. BYD (China) will likely now build a BYD plant here vs Mexico. It’s cheapest all electric car is about half of what a cheapest Tesla costs (around $17K USD). It will be interesting to see how cheap BYD can make these cars here for (parts and assembly). Look for BYD to build here, soon. AT 50 or less labor hours, per whole car (parts and final assembly); it will make financial sense to build em here; vs pay 25% tariffs. Assuming current wholesale BYD $14K; that’s 14K X .25 = $3500 tariff / car. At 50 hours labor; to make here vs MX might be $2000 here vs $300 there; so $1700 savings there. Compare $1700 labor savings MX vs $3500 tariff! They’ll be making em here. Parts and assembly. By my figures, since BYD can make a car in MX; and sell for $17K; it will be able to make the same car here; and sell for $19K; and that’s cool. That’s making capitalism work for US; not just letting capitalism = race to bottom. Regulated, governed, capitalism.
PS Anyone that thinks these tariffs are a mere negotiating tactic; and might be reduced? WRONG. These tariffs do exactly what Trump wants; bringing manufacturing back, by force. There is no higher goal. These are here to stay. Takes a lot of guts. When Trump’s Wharton Econ school said “tariffs bad,” I think Wharton, (and all others) don’t take into account the forced increase to working class wages; which have the strongest effect on economy; the money is recirculated instantly, exclusively, to our US economy. And, the more “made in USA,” the more this helps . We hear bogus threats of US layoffs due to these tariffs. Do no fall for that. Massive hiring will occur in the US; just watch. These schools teach what they want us to do; not necessarily what is best for US.
@Freightalley companies with vast, global, intermodal gonna get smacked. Will be glut of global intermodal capacity due to forced decline (after current rush before tariffs). Companies like Schneider, JBH, will have to prioritize intra-US intermodal; to attempt good profitability. I think tariffs will prove hugely successful; Dem’s couldn’t dare oppose them. This UAW is telling:)
We’ll likely see working class wages rise drastically in next 18 mo; more than offsetting inflation. Workers win. Trump wins.
The more exposure to global intermodal; the worse financial metrics, IMO. Will be rush, now, then opposite.