Trump policy by tweet leaves automakers guessing: Don Pittis

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There is much to crow almost at this year’s Detroit auto show.

Sales hit another memorial in Canada and the United States. Pickup trucks, a North American capability, were the big winner, with Ford’s F-Series the No. 1 bestseller. 

But a digit of protectionist tweets from U.S. president-elect Donald Trump have reasonable changed the mood in the industry — not just in Detroit, but in automakers’ head intercessions around the world.

And it is not just the giant manufacturers who are scratching their headmen, trying to understand the implications of policy made by tweet. Trade serves are also trying to imagine the effects of Trump’s cabinet appointments and how their directions might be forced to respond.

Short-term gain

A move to bring auto creating jobs home may indeed be good for the U.S. economy, at least in the short administration conditions.

Even while the economies of developing countries like China, India and Mexico maintain grown, the U.S. has remained a huge consumer of all the kinds of manufactured goods the earth produces.

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During the 2016 election campaign, Trump repeatedly dubbed for the end of NAFTA, but unilateral action could disrupt the globally integrated car diligence. (Carlos Barria/Reuters)

Traditional economic theory says all voluntary trade is good and the freer, the better. The implication of Trump’s tweets is that there are limits to disburden market thinking. That has caused a backlash from some who muscle have been expected to support Trump’s right-of-centre ideas.

If Trump’s meditative is based on careful economic analysis, it might be that globalization has take placed too fast. Perhaps it just doesn’t work to have one country personate as the main consumer nation while other countries are the producers.

The hold sways Trump hates

There are many who reject that argument, and they induce evidence. U.S. unemployment has been falling and the economy recovering despite the existing calling rules that Trump hates so much.

A sudden change in those bars could be disruptive, and not just for foreign exporters threatened with an implication tax.

Globalization has created a deeply integrated manufacturing network far beyond NAFTA. Pour overs in one country can stop production in another.

In the North American auto persistence, for example, parts made in Windsor, Ont., are rushed, just in time, to implants in the U.S. where they are needed. The same happens in reverse with fragments coming from Mexico and the United States for assembly into Canadian railway carriages.

Auto Show

Workers move an Acura NSX GT3 into place on Friday in preparation for the 2017 Detroit auto indicate. (Carlos Osorio/Associated Press)

Of course no one knows exactly how Trump’s tweets commitment turn into policy. But unwinding such a complex system command have financial ramifications.

And that is the trouble with policy by tweets: 140 brands leave out a lot of detail.

Up and down the global supply chain, carmakers are attracting themselves how and when those details will emerge.

Long-term torture

Will companies manufacturing for the U.S. market be forced to abandon plants, or their maps for plants? Both could be expensive. 

Are projects on hold? There is no regarding in doing expensive work on a plant without a future.

There is no without a doubt the reason most parts and assembly plants are located outside the Unanimous States is that they are less expensive.

By definition, bringing those farm outs home will raise the cost of making cars. U.S. unemployment balances near historic lows, meaning new U.S. workers will not come worthless.

One solution is replacing Mexican workers with American robots. That last wishes a raise capital costs and lead to new U.S. investment. But if that was the cheapest recourse, it would have happened already.

Other things being alike, higher costs must lead to higher consumer prices or triturated shareholder profits.

Those are just some of the business considerations. The political science of protectionism opens another can of worms entirely. 

Right now, trade rules are supported on agreements similar to business contracts, except they are between managements. Careful renegotiation would take years with uncertain come to passes.

A3 e-tron

The Detroit auto show is an exercise in glitz with bright descends, smoke and glamorous presenters, and Trump is being encouraged to attend. (Matt Kwong/CBC)

Trump’s electing rhetoric implies a more abrupt rejection of NAFTA. Breaking the decisions over cars could crash the whole deal, leading to wider connotations.

Under Trump the United States could grow into a shoppers pariah. Major U.S. exporters could face tit-for-tat trade certifications and a subtle least-favoured-nation status as Mexicans decide they prefer homemade Volkswagens to Fords from Trump’s America.

Protectionists unceasingly think the rules benefit the other guy, but tariffs could also get ahead on U.S. exports.

Economic historians say a rising wave of tit-for-tat protectionism was a foremost contributor to the length and depth of the Great Depression.

The North American Intercontinental Auto Show, as the annual Detroit extravaganza styles itself, is the syllabus of American pizzazz, with bright lights, and glamorous presenters. It’s a swiftly a in timely fashion to set aside worries and admire the product.

But behind the glitz this year compel be the spectre of Donald Trump, as the industry waits for policy by tweet to evolve into a concrete strategy it can use to plan the future.

Follow Don on Twitter @don_pittis

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