A 2021 Jeep Grand Cherokee L goes through assembly at the Stellantis Detroit Assembly Complex-Mack on June 10, 2021 in Detroit, Michigan. The plant is the first new auto assembly plant in Detroit in thirty years, and will manufacture the 2021 Jeep Grand Cherokee L. | Bill Pugliano/Getty Images
Business leaders say the thing they prize most from government is certainty.
They want assurances about tax rates and regulations to make informed decisions on deploying capital, hiring workers and forecasting revenues.
But Donald Trump’s election as president portends a business climate with the stability of the San Andreas Fault.
No doubt many of those business leaders like Trump’s stated focus on cutting taxes and blowing up the federal bureaucracy. A lot of them probably voted for him.
But Trump’s penchant for chaos and making wildly contradictory policy statements offers little clarity about his economic policy over the next four years.
“There are lots of things Trump said in the campaign, but we’re not exactly sure what’s going to happen. His statements are often inconsistent,” said Charley Ballard, a Michigan State University economics professor emeritus.
On the campaign trail Trump repeatedly said he plans to bring back manufacturing jobs from overseas and “revolutionize” the auto industry. As a major manufacturing state and the center of the U.S. auto industry, whatever Trump does could have a significant impact on Michigan, good or bad.
“The disruption of the economy of our state is likely to be larger than the disruption in other states,” Ballard told me.
Ballard, who has studied Michigan’s economy for decades, is not convinced the disruption will be good.
The centerpiece of Trump’s economic plan is replacing much of the federal income tax system with a broad range of tariffs, while erroneously claiming that tariffs are paid by the countries exporting goods to the United States.
His goal in expanding tariffs is to prompt American companies to bring back jobs they’ve created overseas and lure foreign companies to build factories here.
“To me, the most beautiful word in the dictionary is ‘tariff,’” Trump has said.
The president-elect has proposed an across-the-board tariff of 10% to 20% on foreign-made goods and a particularly onerous 60% on Chinese products. Those tariffs will be paid by U.S. companies importing foreign goods and passed on to consumers.
Most economists are apoplectic over the proposal, saying such tariffs will significantly hike prices on consumer goods, reignite inflation and spark a dangerous trade war.
The conservative Tax Foundation has estimated a 20% tariff would cost American households an average $2,045 a year and replace only a fraction of the tax revenue lost if the expiring provisions of Trump’s 2017 tax cuts are made permanent, as expected.
“No economist thinks that’s a good idea,” Ballard said. “A lot of businesspeople don’t think that’s a good idea, either. A lot of them will say, ‘Wait a minute.’”
They already are. U.S. companies are “flooding lobbyists’ phone lines” looking for ways to protect their businesses from the proposed tariffs, CNBC reported.
But a president-elect who seemingly doesn’t understand how tariffs work and who thinks “tariff” is the most beautiful word in the dictionary won’t easily be deterred.
Trump’s tariff-based approach to boosting Ford Motor, General Motors and Stellantis is particularly problematic and features a mass of contradictions.
He has threatened to impose a 2,000% tariff on Chinese vehicles that might be sold here in the future and has said that high-quality, low-cost Chinese-made electric vehicles could destroy Detroit’s automakers.
Simultaneously, Trump has claimed that American consumers don’t want electric cars and has said Detroit automakers should get out of the business of building them. Never mind that they’ve already spent billions of dollars to develop EVs.
Trump reportedly is planning to kill the $7,500 consumer tax credit for purchasing electric vehicles. He and the Republican-controlled Congress also might ax incentives to speed the transition to EVs.
Among those incentives is a $500 million award from the Biden administration to help General Motors convert a Cadillac assembly plan in Lansing to EV production. In two Michigan appearance last month, Vice President-elect J.D. Vance refused to say whether a Trump administration would issue the cash for a project promising to save 650 jobs and create up to 50 new ones.
Trump’s plan to boost the domestic auto industry by protecting it from foreign competition through tariffs fails to recognize the complexity of industry supply chains.
Most Detroit Three vehicles assembled in the U.S. contain parts sourced all over the world. Those parts would be subjected to tariffs, hiking vehicle prices to consumers. It might be cheaper for suppliers to pay the tariffs and pass on the costs than to build costly new factories here.
And then there’s the X-factor, Elon Musk, who has endeared himself (at least for now) to Trump.
It must give the CEOs of the Detroit Three automakers pause to see their toughest competitor in EVs poised to influence major economic policy decisions in the new administration.
Trump has appointed Musk to co-lead a Department of Government Efficiency, an outside agency that will advise the president-elect on slashing government spending.
Musk has said he supports eliminating all government incentives for electric vehicles because he thinks the loss of incentives will be “devastating” to automakers (re: the Detroit Three) trying to play catch-up to his company, Tesla, in the EV race.
Kind of makes you wonder whose side Trump is on — the Michigan businesses and workers he courted so aggressively during the presidential campaign, or billionaires like Musk who would cripple government for their own benefit.
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