General Motors Warns Tariffs Will Lead To ‘A Smaller GM’ As ‘Stable Genius’ Trade Strategy Backfires (Again)

Witness the domino effect.

Two weeks after Daimler became the first major company to issue a profit warning citing international trade tensions and four days after Harley-Davidson revealed plans to move some production to Europe in what amounts to an effort to retain access to the European market, General Motors is out warning that tariffs could prompt the company to cut its U.S. presence.

Specifically, GM is citing the administration’s proposal to tax vehicle imports, a move the company says “could lead to a smaller GM”.

The U.S. Section 232 National Security Investigation of Imports of Automobiles and Automotive Parts has the potential to “undermine competitiveness versus foreign carmakers” and chances “provoking retaliation by other countries”, GM continues, in comments filed with the Commerce Department.

This is just the latest example of Trump’s trade “strategy” (scare quotes there for a reason) backfiring in spectacular fashion.

Early last year, Trump hosted the CEOs of GM, Ford and Fiat Chrysler in a push to promote American manufacturing. “We have a very big push on to have auto plants and other plants – many other plants,” he said at the start of that meeting, adding that “it’s happening.”

Got that? “It’s happening.”

Well actually, no. The opposite is now “happening”. And precisely because Trump doesn’t understand economics or trade or business or anything at all really. Here’s what he tweeted after that meeting, just for old time sake:

https://twitter.com/realdonaldtrump/status/824055927200423936

Note that there’s a lot of hilarious precedent here. For instance, Trump famously took credit for GM’s decision to shutter one of its plants in South Korea. Here’s the clip, from February:

 

The problem? That had nothing to do with Trump. Here’s what GM said the day after Trump made those comments:

The announcement is related to our need to restructure our business in South Korea. Depending on the outcome of those restructuring efforts there could be broad global implications but as we said yesterday we need the full engagement of all stakeholders with a sense of urgency.

Fast forward to last month and there was this (from Reuters):

Fresh off a $7 billion rescue for its loss-making South Korean operation, General Motors faces a new threat as U.S. President Donald Trump considers higher vehicle import tariffs that could “make or break” its Asian subsidiary.

Earlier this month GM agreed on the bailout package with the South Korean government in return for a pledge to stay in the country for at least 10 years, purchase more Korean-made parts and produce two new models popular in the U.S. market.

But less than two weeks later, the Trump administration launched a national security investigation into car and component imports that could lead to new U.S. tariffs similar to those imposed on imported steel and aluminum in March.

Higher tariffs would be painful for Asian automakers whose shipments accounted for one third of U.S. vehicle imports last year through heavyweights such as Toyota and Hyundai Motor.

They could also have a devastating impact on smaller players such as GM Korea and its plan to become a major export hub again.

“This is a matter that could make or break GM Korea,” a person familiar with GM’s situation told Reuters.

So you can see how this latest news has the potential to be a sore spot for the administration.

You’ll recall that when the administration first suggested it could use “national security” as an excuse to tax imports, Cody Lusk, president of the American International Automobile Dealers Association had this to say:

To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees.

And here’s what Japanese Trade Minister Hiroshige Seko said at the time:

Imposing broad, comprehensive restrictions on such a large industry could cause confusion in world markets, and could lead to the breakdown of the multilateral trade system based on WTO rules.

Oh, and don’t forget about John Bozzella, head the trade group Global Automakers (they represent Toyota, Nissan, and Hyundai, among other companies) who said this in April:

To our knowledge, no one is asking for this protection. This path leads inevitably to fewer choices and higher prices for cars and trucks in America.

And on and on.

Trump has ratcheted up threats against European automakers over the last several weeks, leading directly to continued weakness in the SXAP which is very nearly in a bear market, despite limping higher on Friday:

SXAP

Now let’s see how long it takes before Trump throws GM under the bus just like he did that other “American icon“.

My guess: Trump will threaten GM like he did Harley. Of course I don’t know why I would think that…

https://twitter.com/realdonaldtrump/status/816260343391514624


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