DETROIT, Mich.–The Trump administration’s decision Friday to put off tariffs on imported cars and parts for a minimum of six months will be good for auto and parts stocks, and shows a lack of appetite for putting cars into the cross-hairs of the Trump trade strategy.
The White House faced a May 18 deadline by when it would have had to decide whether or not to it impose new tariffs on car and auto parts’ imports. The White House kicked the can down the road another 180 days as it continues to talk to the concerned exporting countries.
Trump, who has been waging an expensive trade war with China, has been mulling over imposing tariffs as high as 25% on imported autos. The Commerce Department has recommended–at the direction of Trump–that such duties be imposed in order to protect the domestic auto sector, citing national security concerns. The same rationale has been used to justify duties on steel and aluminum imports. But those measures are plainly driven by politics, not national security, as Republicans are trying to keep working-class and even union workers in the fold for 2020.
But the optics on the war with China is not going well for the White House as it relates to agriculture in states like Iowa, Nebraska, Wisconsin, Missouri and others. Those farmers are being punished by China, which previously bought a lot of soybeans and other crops. A tariff war around cars could easily tip swing states like Michigan, Ohio and South Carolina away from Republicans. There is a growing awareness that these tariffs are not going to so much result in more auto and parts plants opening in the U.S., but companies having to lay off workers or cut bonuses because their profits are hurt by the tariffs.
The tariffs on China are dragging the stock market into negative territory. Pulling down the auto sector with any further tariffs would be politically pretty dicey for Republicans.
Shares of BMW AG surged as much as 5% on the delay, while Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles also gained.
One area that the Trump White House is considering is making it harder for another Chinese auto company to get a toehold in the U.S., while it largely leaves European and Japanese companies alone.
Trump advisers have cautioned the president that action on auto tariffs could risk serious push-back from Congress. Trump’s own party is threatening to move forward with legislation to limit the president’s tariff authority with many in Congress saying duties on cars, which are widely opposed by the auto industry, would be a step too far.
Foreign automakers that have built factories across the Southeast have gotten powerful Republicans in their corner: Honda in Ohio and Alabama; Toyota in Kentucky; Nissan in Mississippi and Tennessee; Hyundai in Alabama; Mercedes-Benz in Alabama; BMW is South Carolina. And all those plants have extensive supplier parks. This represents massive investments in states previously abandoned by the textile and furniture industries, and these companies are popular in their states with U.S. workers and business owners.