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Your Guide to Washington and the World’s 2024 US Election Means
One frustration appears, especially on a daily basis, when forced to listen to Trumpian complaints about American trading partners. The US roads and garages are full of Volkswagen, Hyundai and Toyota, but the rest of the world doesn’t buy American cars.
Europe is the main goal of this rage, with older statistics being aired separately that the EU will impose a 10% tariff on cars from the US, with the latter 2.5% charges for cars from Europe. The reality is that it is the US’s own long-standing autoprotectionism that nurtures an introverted, globally uncompetitive industry and is now lagging behind the electric vehicle (EV) revolution. Donald Trump’s 25% tariff on cars and car parts shows he learned the wrong lesson.
To address that worn-out story point: EU import duties on standard vehicles such as hatchbacks and minivans are actually 10% versus 2.5% in the US. However, US light truck production, including pickups, has long evacuated behind the 25% tariff wall. This obligation is known as the “Chicken Tax” after Lyndon B. Johnson imposed it in 1964 in retaliation for European taxation on American poultry.
Industry experts say Detroit’s Big 3 automotive companies (Ford, General Motors and Chrysler (now part of the Stellantis Group) are increasingly focusing on innovation in the manufacture of pickup trucks, using the same platforms and components to develop large-scale sports utility vehicles (SUVs) that seduce gas. Felipe Munoz, senior analyst at Jato Dynamics at Market Intelligence Company, said that pickups and heavy SUVs were just 17% of our light vehicle sales, but “it’s the place where we make most of the money in the American market.”
However, the rest of the world tends to have narrower roads and higher fuel taxes than the US. “This protection has made American automakers less competitive worldwide,” Munoz told me. Japanese companies are making family cars popular all over the world. Not in Detroit. The largest automobile exporter from the US is not a US manufacturer, but a German BMW.
When American car companies actually responded to European customers, they were successful, including manufacturing there. Ford has long held position in the European market. This includes consistently being one of the UK’s best selling brands. But now they’re struggling and have cancelled their popular little car to focus on SUVs. Five years ago, GM sold the Opel brand that operated in Europe for decades, focusing on larger vehicles in the home market.
It is not EU protectionism that hurts American car manufacturers overseas. The European Commission has long made an offer to the NIL to open the doors of the US to reduce tariffs on all industrial products, including cars. Still, the victim’s sense continues.
Despite Tesla’s pioneering role in the EVS, traditional US manufacturers have given the ground to China, even slower transitions to new technologies than their blunt European counterparts. The EU has recently adopted a practical approach to using targeted tariffs to provide car manufacturers with space to catch up with the domestic market, using joint ventures and technology transfers with Chinese companies.
However, the Biden administration has sought to create a North American EV industry behind the protection wall. It created a limited tax credit, attacking China’s imports with 100% tariffs, banning Chinese auto software and pushing Canada and Mexico to do the same. As of 2023, the share of EVs in total vehicle sales in the US was about half that of Europe and a quarter of China.
Trump went further, imposing tariffs to attempt to repatriate car production from Canada and Mexico. This is a potentially catastrophic move, even more so if we remove the current tariff exemption for vehicle parts covered by the US-Canada trade agreement. Nevertheless, it was supported by the leadership of UAW, a union of parking officials who disappointed Canadian counterparts.
Increasingly, disruption in US trade policy means relying on the US market, but that means taking a large but serious risk. Jato Dynamics calculates that Trump’s tariffs are heavily dependent on the US market and sources in Canada and Mexico, so Trump’s tariffs could actually be hit harder and more violently than their Japanese and European competitors.
FT reported this week that Chinese EV maker BYD has begun to view their absence from the US market as profit. Unlike its rival Tesla, you can work on conquering the rest of the world, rather than worryingly watching Trump’s next twist and spin.
The US is wasting its historic lead in car manufacturing with the very trade barriers opposed to overseas. Trump’s tariffs drag it back further. It would be hard to invent a more moving warning story about the damage protectionism can bring to your home.
alan.beattie@ft.com
