How might President-elect Trump's threatened tariffs affect the auto industry?

SCOTT DETROW, HOST:

You never know if President-elect Donald Trump is bluffing, but when you have billions of dollars on the line, you have to take him seriously. So car companies took notice when Trump announced a plan for huge new tariffs in a social media post just before Thanksgiving. A 25% tax on imports from Canada and Mexico would have a major impact on the car industry, which depends heavily on cross border trade. NPR’s Camila Domonoske, who covers the auto industry, and Andrea Hsu, who covers labor, have been talking to car companies and workers about the plan and join me now. Hey there.

CAMILA DOMONOSKE, BYLINE: Hi.

ANDREA HSU, BYLINE: Hey, Scott.

DETROW: So Andrea, I’m going to start with you. Getting back to this question, which we asked so many times for a four-year span, can Trump do this because, specifically, doesn’t the U.S. have a free trade agreement with Mexico and Canada?

HSU: Yeah. Yeah, it’s called USMCA. Trump himself signed it into law in 2020. It replaced NAFTA, and under this agreement, goods flow across the borders duty-free as long as they meet certain requirements. So when it comes to cars, those requirements have to do with how much of the vehicle was produced in North America and the wages paid to people building those cars. But there’s no outside party like a court that can force a country into compliance. So if Trump issues an executive order imposing a 25% tariff, as he has threatened to do, we would just expect Canada and Mexico to retaliate with tariffs of their own. But I do want to reiterate here - we just don’t know if he’s actually going to follow through with this.

DETROW: Right. Camila, I want to get to the car companies’ perspective on this. What would a 25% tariff on imports from Canada and Mexico mean for the car industry?

DOMONOSKE: Well, look, it’s an increase in costs, and that’s coming at a time when affordability for vehicles is a major concern for the auto industry. The average new vehicle right now costs almost $49,000, which is wild. It’s a tremendous amount of money. If you look at how these tariffs would affect prices, one way is on finished vehicles. So that’s your Toyota Tacomas that come from Mexico, Chrysler Pacificas that are made in Canada. They would get more expensive as the tariff is applied to them. But bigger than that, it would affect parts, and we have built an entire supply chain in the United States around the U.S., Mexico, and Canada working together to build these vehicles.

DETROW: Can you give me an example to help us understand that supply chain and how important and I guess fragile it is when it comes to all of this?

DOMONOSKE: Yeah, I’ll take one example which is talking about wire harnesses.

DETROW: All right.

DOMONOSKE: So this is like the nervous system of a car, the wires that connect all the different electronic bits and bobs. And you don’t want a giant spaghetti pile of wires at the bottom of a car like I have on top of my desk right now. So they connect these wires into bundles very precisely and neatly, right? It’s a lot of labor. And what happens right now is you might have a wire or clips for those wires made in the U.S., shipped to Mexico to then be tied into these precise bundles and then shipped back into the U.S. to go into, say, a seat or another component before then they also go into the final car. Lots of parts of cars get built up like this in a series of steps that happen on different sides of these borders. So when you have concerns about tariffs and then retaliatory tariffs, the costs could really build. And this affects all car companies, not just ones that have plants in Mexico or Canada.

DETROW: Given all of this, though, Andrea, you know, the UAW has actually pushed for higher tariffs on cars in the past, right? Like, how - help us make sense of all of this.

HSU: Yeah, specifically higher tariffs on cars coming from Mexico and Canada that don’t meet the strict requirements for North American-made parts and higher wages that I talked about - and this is all about protecting jobs. So let’s say you have a car plant in Mexico that’s making cars for the U.S. market, but the engines or the transmissions are not made in North America. Those cars can’t come into the U.S. duty-free. The penalty is a 2 1/2% tariff. But the union is saying that’s too low to be a deterrent. It might be cheaper for those carmakers to pay that tariff than it would be to source everything in North America. So the union would like tariffs that are high enough to compel companies to make, you know, cars, make parts ideally in the U.S. But, you know, raising that 2 1/2% tariff is very different from imposing a blanket 25% tariff on everything that’s coming from Mexico and Canada.

DETROW: Any sense from the conversations you’ve had how workers think they’ll be affected by all of this?

HSU: Well, I talked with Romaine McKinney. He’s president of UAW Local 869 outside Detroit. His members work at Warren Stamping. They stamp all kinds of metal parts that are sent to plants in the U.S., but also to Mexico and Canada. And so they would feel the impacts of a trade war immediately. Maybe they’d have to slow production if orders slowed. But beyond that, McKinney stressed it’s not just about cars or car parts. A 25% tariff, he says, would run up the prices of all kinds of consumer goods.

ROMAINE MCKINNEY: Whether that’s fruit and vegetables or nuts and bolts - a 25% tariff will expeditiously run up the cost of operating your home. That is the bigger problem for us.

HSU: You know, he says autoworkers are middle-class Americans who are price-conscious consumers.

DETROW: OK. Camila, what about the other argument, though, the one in favor of tariffs? You make it more expensive to import things, more things are built in the U.S.?

DOMONOSKE: Yeah. And, you know, in the auto industry, there is a big, unusual, kind of odd tariff specifically on pickup trucks, called the chicken tax. And after that tariff was put in place a very long time ago, a bunch of pickup manufacturing did move from overseas to North America. One caveat is the number of jobs involved is not always what people would hope for. When a company moves production from a country where cost of labor is cheap to one where wages are really high, they are often very motivated to see how much they can do by robots.

DETROW: Yeah.

HSU: Yeah, I will jump in here just to say, you know, a lot of manufacturing workers, union workers, they really were won over by Trump’s promises that, you know, he was going to bring back manufacturing to the U.S. and do it through tariffs, even if the reality of that is far more complicated and messy. I have also heard from rank-and-file workers who didn’t support Trump, who think his tariffs are a bad idea, who nevertheless believe this presidency, the second Trump term, ultimately will be good for their jobs. You know, some of the other promises that Trump has made could provide them some job security. If he lowers emission standards, for example, that could extend the longevity of gas-powered models, like trucks and SUVs, which are bestsellers in America and are fueling those jobs.

DETROW: OK, so when it comes to incoming President Trump, we know how quickly he can change his mind. We know how quickly policies will be redirected. We’re talking a month and some change before he actually takes office. Given all of that, do either one of you want to give us a reality check on how likely this 25% tariff is?

DOMONOSKE: Yeah, I’ll jump in and say that this particular tariff, the president-elect has talked about it. He described it in his post as being a negotiating tactic over immigration and drug trafficking. So the goal is not to have this tariff in place. So even if it is actually imposed, there will be a question about how long it’ll last. Paul Jacobson of - he’s a senior executive at General Motors. He was recently talking to investors, and he said this.

(SOUNDBITE OF ARCHIVED RECORDING)

PAUL JACOBSON: You know, we’re trying to not overreact to anything out there in the short term. I understand the rhetoric that’s out there, but I’m not going to overreact to a tariff if I don’t know that...

UNIDENTIFIED PERSON: Right.

JACOBSON: ...It’s not going to be traded away in 90 days for something else.

DOMONOSKE: You know, car companies plan years ahead, right? And any new factories would be open for decades. At the same time, I am hearing from folks that Trump has talked seriously about other tariffs, ones that he does not describe as bargaining chips but as policies in themselves, and companies are taking those possibilities really seriously.

DETROW: That’s NPR’s Camila Domonoske, who covers the auto industry, as well as Andrea Hsu, who covers labor. Thanks to both of you.

HSU: Thank you.

DOMONOSKE: Thank you, Scott. Transcript provided by NPR, Copyright NPR.