{"id":1030,"date":"2025-03-27T20:40:57","date_gmt":"2025-03-27T20:40:57","guid":{"rendered":"https:\/\/www.insuracarelife.com\/blog\/with-car-tariffs-trump-puts-his-unorthodox-trade-theory-to-the-test\/"},"modified":"2025-03-27T20:40:57","modified_gmt":"2025-03-27T20:40:57","slug":"with-car-tariffs-trump-puts-his-unorthodox-trade-theory-to-the-test","status":"publish","type":"post","link":"https:\/\/www.insuracarelife.com\/blog\/with-car-tariffs-trump-puts-his-unorthodox-trade-theory-to-the-test\/","title":{"rendered":"With Car Tariffs, Trump Puts His Unorthodox Trade Theory to the Test"},"content":{"rendered":"<div data-testid=\"companionColumn-0\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">President Trump and his supporters have clashed with mainstream economists for years about the merits of tariffs. Now, the world will get to see who is right, as the president\u2019s sweeping levies on automobiles and auto parts play out in a real-time experiment on the global economy.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">In Mr. Trump\u2019s telling, tariffs have a straightforward effect: They encourage companies to move factories to the United States, creating more American jobs and prosperity.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">But for many economists, the effect of tariffs is anything but simple. The tariffs are likely to encourage domestic car production over the long run, they say. But they will also cause substantial collateral damage that could backfire on the president\u2019s goals for jobs, manufacturing and the economy at large.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">That\u2019s because tariffs will raise the price of cars for consumers, discouraging car purchases and slowing the economy. Tariffs could also scramble supply chains and raise costs for carmakers that depend on imported parts, reducing U.S. car production in the short term.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-1\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">They could also lead to retaliation on U.S. car exports, as well as other products American companies send abroad, leading to damaging global trade wars.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">On Thursday, global stock markets fell, with auto stocks hit hardest, as investors absorbed the scope and severity of Mr. Trump\u2019s plans. Shares in General Motors, which imports many of its best-selling cars and trucks from Mexico, were down roughly 7 percent in midday trading. Stellantis and Ford shares were also lower. European shares closed lower Thursday, with carmakers suffering the worst losses.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">As automakers and economists scrambled to rework their growth forecasts, America\u2019s allies slammed Mr. Trump for imposing tariffs, saying the levies would destabilize the global economy, and vowed to retaliate.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Brad Setser, an economist at the Council on Foreign Relations, said the tariffs were likely to lead to more domestic auto production in the long run. But getting there would be \u201creally disruptive,\u201d he said, and costly to both American consumers and the U.S. economy.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Mr. Setser said foreign automakers would be unlikely to give up on the U.S. market, and that brands like Toyota, Hyundai and Mercedes could end up making more cars in the United States to avoid paying the tariffs. In the shorter run, however, higher prices could convince some American consumers not to buy cars at all.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-2\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">And that, along with disruptions in supply chains that run through Canada and Mexico or depend on foreign parts, could actually cause U.S. auto production to fall in the near term.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Nearly half of all vehicles sold in the United States and 60 percent of all parts used in auto factories are imported. Daniel Roeska, an analyst at Bernstein, predicted that automakers could see costs rise by $6,700 per vehicle sold.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cYou could, because of the disruption along the way, have something that looks like a cyclical downturn in the auto sector, with layoffs, with lost jobs, even in places that will attract new investment and grow over time,\u201d Mr. Setser said.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cThis is a fairly risky move,\u201d he added.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Economists said the approach is likely to have downsides not just for foreign automakers like Toyota and Mercedes, but also for U.S. brands.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Jim Reid, a research strategist at Deutsche Bank Research, noted that it was not just overseas auto stocks that had tumbled, but also those for General Motors, which assembles just over half of its cars purely in the United States, he said. \u201cSo the pain is happening domestically as well as abroad.\u201d<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-3\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">\u201cThe more you listen to the current U.S. administration, the more you appreciate that they are prepared to sacrifice near-term market performance and economic growth if it\u2019s required to meet their longer-term objectives,\u201d he said.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Economists have also questioned Mr. Trump\u2019s assertions that tariffs will bolster economic growth, investment and hiring, suggesting that they could do the opposite.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">In a note on Thursday, economists at Barclays Research said they had revised their forecasts and now expected global and U.S. growth to slow considerably from 2024 levels. \u201cBut if worst-case outcomes on tariffs are realized, even those forecasts may end up being too optimistic,\u201d they wrote.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Marc Giannoni, the chief U.S. economist at Barclays, said that uncertainty over the direction of trade policy would encourage businesses to hold off on making new investments in factories and hiring more workers in the coming months.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cWe expect businesses to hire less in the next few months,\u201d he said. \u201cBusinesses that are pausing the investment decision are likely also to pause the hiring decision. So we see a lot of reduction in demand for labor.\u201d<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-4\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Mr. Trump has denied that the tariffs would have much negative effect, instead pointing to multiple company announcements of new investment in the United States. In addition to introducing additional tariffs on imports from China, Canada and Mexico in the last few months, Mr. Trump is planning to announce more tariffs next week, which he has said will make the global trading system more fair.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-5\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Speaking at the White House on Thursday, the president said that \u201cbusiness is coming back to the United States so that they don\u2019t have to pay tariffs.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cA lot of companies are going to be in great shape because they\u2019ve already built their plant, but their plants are underutilized, so they\u2019ll be able to expand them inexpensively and quickly,\u201d he said. He added that, \u201cothers will come into our country and build, and they\u2019re already looking for sites.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">But others say that carmakers are likely to wait to see whether the tariffs will last. Though Mr. Trump said Thursday that they would be permanent and the White House said that no exclusions would be granted, both foreign countries and companies appeared to be hoping that the president would relent.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-6\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">\u201cAlthough he\u2019s been pretty clear he intends to, we know from previous experience we shouldn\u2019t assume these things are a done deal until they really are,\u201d said Jennifer McKeown, the chief global economist at Capital Economics.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Kit Johnson, a customs broker in Savannah, Ga., who helps car manufacturers with their importing, said he had been on the phone with customers all morning on Thursday, and there was \u201ca big scramble right now to figure out what to do.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The tariff pronouncements in the last few weeks had made it difficult for his clients to plan. \u201cEvery announcement that comes out, there\u2019s planning sessions, they\u2019re running different models to figure out what the financial impact will be,\u201d he said. \u201cIt\u2019s been one thing after another.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Mr. Johnson said he believed the tariffs were \u201ccounterproductive to what the administration\u2019s stated goals are.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Many companies wanted to manufacture more in the United States, and gradually bring their suppliers over as they do so. But tariffs would \u201cput a financial strain on them\u201d as they tried to devote more resources to expanding U.S. investments, Mr. Johnson said. \u201cIt\u2019s kind of a Catch-22.\u201d<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-7\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">The other main question is whether tariffs will spiral into bigger trade war. Mr. Trump said on social media early Thursday that he would punish the European Union and Canada if they tried to work together to fight back against his tariffs.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cIf the European Union works with Canada in order to do economic harm to the USA, large scale Tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!\u201d Mr. Trump wrote.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Foreign leaders responded angrily, though none immediately announced retaliation. Mr. Trump introduced his tariffs on the basis of U.S. national security, a concept that has rankled traditionally close allies like Canada, Europe and Japan.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Canada\u2019s prime minister, Mark Carney, said his country would introduce additional retaliatory tariffs on the United States but they will not be finalized until Wednesday, when Mr. Trump plans to introduce his so-called reciprocal levies.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cWe will respond forcefully,\u201d Mr. Carney said. \u201cNothing is off the table to protect our workers and our country.\u201d<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-8\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">President Emmanuel Macron of France said Thursday that he had told Mr. Trump during a discussion the day before that tariffs were \u201cnot a good idea,\u201d and said that Europeans would respond by reciprocating in hopes of getting the U.S. president to reconsider.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Mexico\u2019s president, Claudia Sheinbaum, told reporters, \u201cWe are always going to protect Mexico.\u201d The Mexican government would issue \u201can integral response\u201d to all U.S. tariffs \u2014 which so far also include levies on steel and aluminum \u2014 hitting the country on April 3, she said.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cThat does not mean we close the door on the United States on April 3,\u201d she said. \u201cThe door is open for talks with the U.S. government.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Economists predicted that the tariffs could be particularly devastating for Canada and Mexico, which have been integrated into the North American auto supply chain for decades. The tariffs also raise questions about the U.S. commitment to various trade pacts.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Wendy Cutler, the vice president of Asia Society Policy Institute, said that the tariffs would have \u201ca devastating impact on many of our close trading partners \u2014 Japan, Korea, Mexico, Canada and Europe,\u201d and that the United States had free-trade agreements with three of those five governments.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-9\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Flavio Volpe, the president of the Auto Parts Manufacturers\u2019 Association of Canada, said that the tariff could lead to industry shutdowns through North America within a week.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cHe is using a really blunt instrument,\u201d Mr. Volpe said of Mr. Trump. \u201cOne million cars in Canada a year are made by American manufacturers with 50 percent American parts and 55 percent of American raw materials and he\u2019s ready to push them off a cliff to make a point no one understands.\u201d<\/p>\n<p class=\"css-798hid etfikam0\">Reporting was contributed by <!-- -->Danielle Kaye<!-- -->, <!-- -->Ian Austen<!-- -->, <!-- -->Liz Alderman<!-- --> and <!-- -->Emiliano Rodr\u00edguez Mega<!-- -->.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n","protected":false},"excerpt":{"rendered":"<p>President Trump and his supporters have clashed with mainstream economists for years about the merits of tariffs. Now, the world will get to see who is right, as the president\u2019s sweeping levies on automobiles and auto parts play out in a real-time experiment on the global economy. In Mr. Trump\u2019s telling, tariffs have a straightforward [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1031,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[211,700,199,703,702,246,158,701],"class_list":["post-1030","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-car","tag-puts","tag-tariffs","tag-test","tag-theory","tag-trade","tag-trump","tag-unorthodox"],"_links":{"self":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts\/1030","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/comments?post=1030"}],"version-history":[{"count":0,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts\/1030\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/media\/1031"}],"wp:attachment":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/media?parent=1030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/categories?post=1030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/tags?post=1030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}