The Corner

Politics & Policy

General Motors, the President, and the Trade War

A General Motors Auto worker installs a seal onto a 2015 Chevrolet Malibu at GM’s Fairfax assembly plant in Kansas City, Kan., in 2015. (Dave Kaup/Reuters)

GM announced that it will soon close five plants: four in the U.S. and one in Canada. There are many reasons behind the move, including lower sales of some of GM’s models and the additional cost of $1 billion imposed by the metal tariffs.

The announcement led to another round of complaints and bluster from President Trump who seems to believe it is appropriate for him to tell American companies what they can and cannot do to make sure they’re able to survive in business. He also seems to believe that because the government bailed out GM — an act I opposed and consider cronyism — that that company owes the U.S. jobs and factories. It doesn’t.

To be sure, I can see why the president is so upset. Because he has made the revival of American manufacturing the centerpiece of his campaign and presidency, a weird goal considering the incredibly high manufacturing output that the U.S. has experienced in recent years, every American company that doesn’t go with the plan is chastised publicly, sometimes even threatened. Remember Harley Davidson, which the president threatened with a boycott from its consumers? On Monday, the president told GM that it “better get back in” Ohio “soon,” and that “They better put something else in” the Lordstown, Ohio, plant that is now slated to be closed.

Is this what it has come to that the president is meddling with the productive assets of a private company? And don’t get me started on the president’s threat to cut all GM subsidies. I oppose all forms of subsidies to the private sector but I am also appalled by the use of subsidies as a way for the president to get companies to do what he thinks that they should be doing.

Also, all of this huffing and puffing is a little rich coming from a president who is doing his absolute best to make it harder for automakers, domestic and foreign, to produce cars in the U.S. As mentioned above, one obstacle is the schedule of metal tariffs — punitive taxes on a major input that unquestionably increases automakers’ costs of production and thereby forcing them to hike their prices. GM says that they cost the company $1 billion. This situation obviously isn’t ideal for a company such as GM which has already seen falling sales for a few of its models.

These tariffs are also punishment for companies that use the U.S. as their base for exporting to the rest of the world. You don’t have to be a genius to understand that if it is more expensive to produce a car in the U.S. than elsewhere, it makes cars slated for exports less competitive.

Second, there is NAFTA 2.0, or USMCA. Administration officials keep talking about how the changes imposed during the renegotiation of NAFTA are good for American workers; and I am sure they believe it. I am even willing to believe that workers believe that the changes will benefit them — that is, until they lose their jobs because the production of cars for foreign markets will shift overseas thanks to increases in production costs in the U.S because of USMCA’s new rules of origin that require that all cars entering the U.S. duty-free from Mexico or Canada contain at least 75 percent of content that originated in the U.S., Mexico, and Canada. This figure is up from the 62.5 percent requirement of the original NAFTA deal. This change makes cars produced in the U.S. more expensive and less competitive on the world market.

And then there is the rule tying duty-free treatment of automobiles to the requirement that at least 40 percent of each vehicle be produced by workers paid at least $16 per hour. This mandate, too, artificially increases the cost of producing cars in North America.

The bottom line is plain and simple: Officials can write rules that look good for workers on paper. But if these rules increase production costs, workers nevertheless get penalized as production moves overseas and American automakers export many fewer cars.

Obviously, GM’s decision to close its plants isn’t just about the president’s trade policy. I suspect this decision was a long time in the making. But President Trump’s tariffs certainly didn’t help. And I wouldn’t be surprised if this announcement is only the first of several similar ones to come. The future of the American automobile industry depends on increasing exports of cars made in here by both domestic and foreign companies. It is unclear that there is much room to grow at home (we may even see a decrease in the number of car per family if driverless cars become a reality). And so making it harder to export means stalling the automobile industry and providing it with incentives to move abroad.

If the president wants to avoid this outcome, he’d better remove his metal tariffs. They haven’t achieved their promised goals to get other countries to lower their tariffs. All we have gotten in exchange is higher tariffs and retaliation from trading partners. As you may remember, USMCA did little to lower tariffs with Canada and the U.S. since they were all pretty much at zero already.

And on the subject of metal tariffs and unfair trade, why isn’t anyone in the White House outraged at the exemption process put in place by the Department of Commerce? The exemption process was put in place for U.S. companies suffering from the steel and aluminum tariffs to plea their case before the Commerce Department and ask to be allowed to continue buying foreign steel. Many of the requests make the case that the domestic steel industry doesn’t make the steel that they need or that domestic steel is so expensive or its quality not quite right that not getting an exemption could jeopardize the survival of the business and the welfare of its workers.

That process has long been overwhelmed by the sheer number of exemption requests — which are up to 35,000 and counting so far. Even more appalling is the fact that the steel industry that is set to benefit from the tariffs is also the one filing the objections to the exemption requests. That’s right: The guys who benefit from the damage that Uncle Sam inflicts on steel consumers are the ones asked to also make the case against or for the exemption. In other words, the foxes are watching the hen house. It’s also the wealthiest and most connected foxes. According to a report by my colleagues Christine McDaniel and Danielle Parks, “Three steel producers account for nearly half the objections: Nucor Corporation (3,296), U.S. Steel Corporation (2,220), and AK Steel Corporation (1,269).” That’s stunning.

But it gets worse. Nucor and other steel producers justify their objections by claiming that they can produce all of the steel that consumers previously bought abroad. Yet there is no way on earth that such an outcome is possible. Based on the data, McDaniel and Parks calculated that “Nucor Corporation is the top manufacturer of US steel and produced 24.39 mmt of steel last year. Cumulatively, the firm is objecting to tariff exclusions on 41.20 mmt of imported steel, claiming they could produce that themselves. In other words, they claim, they could nearly triple their production to meet the demand of these US manufacturers, and so Commerce should not grant the exclusion.”

That’s insane. So Nucor is not only the beneficiary of the steel tariffs but also a major player in arguing against granting exemptions from the tariffs for the thousands of American manufacturing firms that are harmed by the tariffs. Nucor is also making unrealistic claims about being able to triple its production.

The bottom line is that the exemption process is no better than a kangaroo court in which the defendant stands no chance of receiving fair treatment — and with the proceedings all conducted in the service of cronies of those who sit in the White House. If that’s the new definition of fairness in America, we are in for a rough ride.

With all of this in consideration, the results of this poll by the American Chamber of Commerce aren’t too surprising:

The impact of the U.S.-China trade war is spurring foreign and Chinese firms to consider moving parts of their supply chains out of both the U.S. and China over the longer term and delaying or canceling investment in both countries, a new survey by an American business group has found.

Countries in Southeast Asian are the primary alternative locations for firms planning a relocation of all or parts of their supply chains.

Some 72 percent of the 219 firms polled said they were considering moving supply chain sourcing out of China, while 77 percent said they would move supply chains out of the U.S.

Some 64 percent of all firms, and 70 percent of American firms, said they would move manufacturing production out of China, against 60 percent considering relocating out of the U.S.

Some 67 percent said they would delay or cancel investment in the U.S. and 66 percent would do the same in China.

#NotWinning.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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