Now that President Donald Trump has backed off his startling threat to pile tariffs on Mexico, the auto industry needs to send a message to the White House: Trade policy chaos is bad for the car business and, ultimately, America.
If he had followed through, he may well have undermined more than his signature trade-policy achievement — such as the U.S. economy and his presidency.
Two of Trump's major themes — punitive tariffs and border security — became further intertwined on May 30, when the president tweeted that the U.S. would impose a 5 percent levy on all goods from Mexico unless the nation stops "illegal migrants" from other countries from entering the United States. The penalties were set to begin this week and escalate to 25 percent by October.
While sanctions against Mexico over refugees from Guatemala might seem absurd, let's assume the logic of realpolitik: The president saw his hard-fought U.S.-Mexico-Canada trade deal stalling in Congress — where more Democrats are talking about impeachment than trade — so perhaps the optics were better if he imperiled the NAFTA replacement himself by rallying opposition to immigration.
So be it. But he also risked sinking the U.S. economy — which he fired up with big tax cuts in late 2017 — and doing so heading into the 2020 election cycle.
Trump's declaration caught a tariff-weary auto industry off guard. Automakers are already watching every penny as U.S. sales soften while autonomous and electric vehicles with unproven returns on investments demand billions in r&d.
The 25 percent penalties would have been disastrous. New taxes — or rapid changes to supply chains and assembly plants — would raise average vehicle prices by thousands of dollars, strangling demand at a time when dealers are already struggling.
How to secure the country's borders is the president's prerogative, but deflating the economy with a gut punch to an industry he vowed to strengthen is not going to help him win support in pivotal states such as Michigan and Ohio.
With the tariff threat having passed — for now — the industry and its political allies on both sides of the aisle must continue to impress upon Trump that any political capital gained from disruptive tariffs would come at a heavy economic price.