Damn you “Tariff Man!”
I’m laughing. It’s not funny, but then again it really is.
Around noon on Wednesday, I published yet another trade war article because what else is there to talk about? This White House is determined that any and all macro-market news for the foreseeable future should, must and will, revolve around Donald Trump’s efforts to make the Rust Belt great again (read: fund tax cuts for the wealthy) by imposing tariffs (read: a de facto consumption tax) on America’s most important trade partners (read: US households).
No sooner had I published a second trade war article in three hours than I was compelled to pen a third by the White House, which said Trump was all set to roll out auto tariffs, underscoring the notion that new levies and fresh escalations are always just one tweet (or one “X” or one “Truth”) away. Analysts will parse the details and run the numbers, knowing full well that the duties could be postponed, negotiated or nixed altogether, depending on Trump’s conversations with the impacted countries.
To be fair to the administration, the news didn’t come out of left field, even as it rattled traders. Auto tariffs are a mainstay of Trump’s trade threat arsenal, and he’s made it abundantly clear they were coming at some point, likely sooner rather than later.
As discussed here on Tuesday, some market participants assumed those levies were on hold in light of the proximity to next week’s reciprocal tariff announcement, but in remarks to reporters Monday, Trump said he’d likely unveil the auto duties “fairly soon, over the next few days.” He wasn’t kidding, apparently.
Although not unexpected in light of the Monday rhetoric, markets were nevertheless vexed by the timing. This is a significant escalation sandwiched between an announcement of so-called “secondary tariffs” tied to Venezuelan energy (that was unexpected) and “Liberation Day” on April 2, when Trump will hit out at what Scott Bessent dubbed the “Dirty 15,” a highly unfortunate moniker for nations the administration deems trade “cheaters.”
I don’t want to say the details of the auto tariffs don’t matter — they do. But, as we’ve seen time and again, the specifics are malleable in the sense that whatever Trump says today is best viewed as a maximalist position from which negotiations can proceed. There’s almost no point in running the numbers, because they’ll be different a month from now, and maybe even a day or two from now.
All anyone can say is that officials from (probably) Canada, Germany, Mexico, Japan and South Korea will have to jump (back) on the phone with Howard Lutnick to figure out if and how their economies are impacted and what sorts of favors, flattery and concessions are needed to placate the emperor.
To cite the by-now-familiar figure from an analysis conducted recently by Anderson Economic Group, Trump’s auto tariffs could raise costs to US consumers by thousands of dollars, and in some cases more than $10,000. And that was just running the numbers using levies on Canada, Mexico and China.
In a nod to the USMCA (i.e., his own trade deal), and as a favor to US automakers, Trump delayed tariffs on Canada and Mexico. Who knows what the future holds for those measures, and for any carveouts.
Plainly, tariffs aren’t going to resurrect US auto manufacturing. We’ve been down this road over and over and over again. The story hasn’t changed. Even if tariffs worked (and they won’t for a laundry list of familiar reasons), you can’t just “build more cars.” It’s not that simple. Neither can you re-shore the entire supply chain overnight.
Remember: Populists everywhere and always traffic in quick fixes for complex problems. But, by virtue of their complexity, such problems aren’t amenable to quick fixes. Pretending they are is futile at best and conducive to suboptimal outcomes at worst.
What can you do? Laugh. What can you say? C’est la vie.
Glad right now we have more cars than we need, having neglected to bother selling 2 of old ones when bought new ones over the last few years! Should I be found guilty of hoarding?
I think Harleys are still made in the USA: https://www.youtube.com/watch?v=egMWlD3fLJ8
I resignedly await for your fourth article in 3 hours. 25% tariffs announced.
As noted: “There’s almost no point in running the numbers, because they’ll be different a month from now, and maybe even a day or two from now.”
And maybe a year or four years from now.
Pity the OEM trying to figure out how to respond. By the time you and your suppliers build the new factories and hire the new workers in Alabama, the applicable tariffs have changed seven or fifteen times – up, down, sideways – and Trump is about to either be replaced or crowned.
That said, this could be a positive for OEMs who are largely US content for their profitable models and are not big on EVs – it will still disrupt them, but they can raise prices. Might (might – going from memory only) describe FoMoCo. They assemble, and make major components for, most of their larger and most profitable truck and SUV models in the US, have been effectively getting out of the small car business anyway, and are notoriously behind in EVs. Japanese, Korean, and high-end Euro OEMs are probably the most exposed. I wonder if RACE buyers will notice 25%?
John L,
I enjoy reading your learned market analyses, but I shake my head at your attempts to apply rational analysis to the stream of unintelligible threats and actions that come from the Trump administration. I think the most reasonable reactions to the current situation are 1) as a consumer, buy whatever big-ticket items you need now, and hoard whatever you fear might be in short supply as a result of policy blunders in the coming months and years (e.g. generic drugs manufactured outside the US), then plan to hunker down for the next four years (at least); and 2) as an investor, get very risk-averse, especially with respect to US assets–and reassess your old-school ideas about risk. These ideas were based on assumptions about the rule of law, fair markets, and policy continuity, all of which might be on shaky ground now. US Treasury bills and notes used to be referred to as the “risk free” investment base case, but I perceive significant repayment risk and risk of black-swan repricing events in these assets now. I view state/local-issued tax free muni bonds as a safer play for fixed income–and even there we are hearing rumblings about removing the federal tax-free treatment of these. And US equities are becoming uninvestable as far as I’m concerned. There will be winners from the Trump years, no doubt, but it will be highly dependent on where Trump throws his weight, and perhaps in a couple of years, who is “allowed” to profit. Even the thesis that Elon Musk and his companies should do well is at risk, because the bromance relationship between two highly egotistical and unstable billionaires could fall apart catastrophically at any time. I think these are times for capital preservation, and possibly looking outside the US for stability–but there with the risk of exchange rate discontinuities and policy/trade shocks.
I agree with a lot of that.
Running low portfolio beta and equity weight, high cash & equiv & uncorrelated stuff.
Nevertheless I’m interested in “tariff winners” because if they start working it means investors think uncertainty is fading.
I’ve come to understand the term “sanewashing” better when listening to people attempt to explain current policy.
Maybe the Japanese and Korean car makers can cut a deal where they commit to introducing more defects into their vehicles to allow fair competition with US made covered wagons /Jeep Cherokees ?
C’est la guerre might be more apt.
It seems like the “Creped Crusader” and the “Boy Blunder” (a.k.a.: Trump and Musk) have both been slow-walking their respective initiatives this past week or so (tariffs and the DOGE cuts) in what amounts to at least a half-hearted attempt to avoid another 10% market correction. Musk has been less visible, and Trump has appeared slightly more bridled than he was before, even during today’s announcement.
Also, most of the major Japanese, German, and Korean auto manufacturers already have numerous assembly plants located here in the U.S.: Toyota, Honda, Nissan, Subaru, Volkswagen, Mercedes, BMW, Hyundai, Kia, and even Volvo (nearly all in “right-to-work” states by the way). How effective can these auto tariffs be if Jaguar, Land Rover, Ferrari, and Lamborghini are like the only companies left?
None of the foreign manufacturers in the US have unionized labor as well as Tesla (probably over Musk’s dead body). Not sure why the UAW is applauding this action given that it seems that only Jaguar/Land Rover are likely to lose sales. People who buy Ferraris and Lambos are price insensitive.
Curious though about the specifics of the tariffs, since many of the foreign manufacturers “assemble” vehicles with engines etc imported. Also some like BMW only make SUVs or other limited products in the US, other
Just bought a 2025 Toyota Land Cruiser, proudly made in Japan. I think every manufacture should add to each window sticker as a separate line item calling it out as “The Trump Tariff” with the exact amount shown so buyers know how much this administration hates its citizens.
I’m 62, any American made vehicle I have ever owned, was complete junk, I’ll never buy an U.S. built vehicle. That’s not my opinion, that’s my experience with this crap that Detroit peddles. Who are the car manufactures that are always on the top of the reliability list? Take a guess, it’s not GM, Ford, Rivian or Jeep, and for sure not Telsa.
Of course tariffs are a consumption tax.
He dropped them early to distract from Signal and pump his tech support guy!
Last year I bought my first “foreign” car in decades. I had several over the years and all of them but one worked very well. Actually, I was coming off 3 straight US luxury vehicles that were very nice. No defects. However, with unusual good timing I traded up to a Genesis with a ten-year bumper-to-bumper warranty and at 80 I won’t get tariffed or have to pay for repairs. Sweetest car I’ve ever owned. It’s a year old with 3500 miles on it. (The one joy of getting old, low mileage driving.)
I’ve put 219K on my 2007 TL Type S without needing a single significant repair. It was built in Marysville Ohio.
Oh man, I had the 2001 CL Type-S and I had it in 2001. When it first came out, that thing punched above its weight in terms of prestige. I mean, you know, it was still just an Acura, but that was a desirable car, and I loved it to death, but they had transmission problems and I couldn’t deal with that even though it was under warranty, so I got rid of it. But to emphasize: I loved that car.