I have successfully avoided talking in-depth about the tariffs here at The Morning Dump for a couple of weeks, largely because it wasn’t clear what might actually happen (or not happen). As I sip my smoothie and start this post the 25% tariffs against Canada and Mexico are in effect. This might change by the time I’m done with my smoothie, but they’re in place at this very second. Let’s talk about the world we’re entering into and what it means for consumers. More importantly, I don’t want to get to bum everyone out, so I also want to talk about the positive side of these tariffs. It’s going to be great for Chinese companies in the automotive industry. At least I think it will.
I’ve mentioned this before, but I’ve spent the past few weeks and months reading more about government intervention into the economy. Specifically, I’ve been reading about FDR’s Depression-era programs and U.S. trade policy for the last 150 years. The reality is that no one knows for sure what will happen, and that policymakers are historically very bad at judging all the political and economic outcomes of their decisions.
Will I also be bad at judging the future? Probably! Reader, I am no futurist. I’m my only critic.
Today’s TMD will start with the doom-and-gloom from people who claim to know what’s going to happen. Then we’ll look at some positive outcomes. This could be good for Chinese automakers, give European governments a reason to give a break to European automakers and, hmm… maybe bad for Tesla?
And, finally, whenever we have these hard chats I like to end with a little treat. Usually that treat is a Škoda, and today is no different. If you just want to shut off the rest of the world you can skip to the bottom and Czech that out instead.
Ok, donning protective goggles. Let’s do this!
Expect To Pay $2,700 More Per Car, Or Maybe $12,000, Or Maybe Nothing
Ah, the goggles do nothing!
Sorry, I’m feeling a little extra this morning. This is The Autopian, not Bloomberg, so you’ll have to endure the odd reference to The Simpsons or insertion of a completely superfluous Pavement lyric from time-to-time. I have to assume that’s what some of you want, otherwise you’d just read Bloomberg instead of having me read Bloomberg to you.
Let’s start with Bloomberg, then, and my old buddy Keith Naughton on the potential impact of President Trump’s tariff on Canada and Mexico:
Impending tariffs on Canada and Mexico risk driving up US car prices by as much as $12,000, further squeezing consumers and wreaking havoc across the intricate web of automotive supply lines spanning the continent.
The cost to build a crossover utility vehicle will rise by at least $4,000, while the increase would be three times that for an electric vehicle examined in a new study from Anderson Economic Group, an automotive consultant in East Lansing, Michigan. And those costs would likely be passed on to consumers, the study found.
“That kind of cost increase will lead directly — and I expect almost immediately — to a decline in sales of the models that have the biggest trade impacts,” Patrick Anderson, chief executive officer of Anderson Economic Group, said in an interview.
That $12,000 price increase is interesting as it assumes that EV costs will increase more, I assume because EV cars are more expensive to build and the supply chain stretches more into Canada and Mexico, as well as China (which has an additional 10% tariff).
That seems bad! Hey, I said you should buy a car before the next trade war happens way back in November. I took my own advice and bought a car. I think you’ve got roughly a week or two before we see an impact on car prices, so this could be a great weekend to buy a car.
Just how bad this gets, though, is really anyone’s guess. Analysts at Bernstein assume an average cost increase of about $2,700 across the industry, mostly because even cars built in the United States need parts from Canada and Mexico. It’s obviously worse for cars built in those countries. Even more challenging, carmakers may eventually build more cars here, which is one goal, but it’s not like automakers can make that happen overnight as one Business professor pointed out to the Detroit Free Press:
“An auto company launching a new vehicle isn’t like a cereal company adding more marshmallows to a box of cornflakes,” said Erik Gordon, University of Michigan Ross School of Business professor. “It takes three to six years to develop a new car, and it takes the design, testing and integration of assemblies from many companies. If government policy changes in the middle of the process, years of work and tens of millions of dollars can go out the window.”
Gordon said a change in regulation that forces a change in just a couple of parts can cascade into changes in design of a lot of other parts from a lot of suppliers. When the rules keep changing, it makes intelligent long-term planning impossible.
Damn, maybe a smoothie was the wrong choice. Now I really want cornflakes with marshmallows.
Jessica Caldwell from Edmunds makes the same point this morning:
In the short term, automakers will need to pull every available lever to minimize disruptions and soften the immediate impact, but there’s no escaping the fact that higher costs will ultimately be passed on to consumers. With vehicle prices already elevated and interest rates remaining high, American car buyers could face an even more challenging road ahead.
Her point is fair, that automakers can probably hold the line on costs for at least a little while. But not forever.
It’s important to try and understand why this is happening. Also, I don’t really understand why this is happening.
There’s a certain attachment to blue collar auto worker jobs that both parties engage in but, as we discussed in my post on the Theory of Competitive Advantage, it’s not like everyone wants to be an auto worker. Is it worth risking the economy over a few thousand of these jobs? 20,000 jobs? 100,000 jobs? President Trump has made it clear that he only wants car plants in the United States and wants to specifically take them away from Canada and Mexico. It would be wildly inefficient if every country made everything only for itself, which is why we have global trade in the first place.
And, to be fair, President Biden’s administration also tried to do some of this, though it was focused mostly on trying to kickstart the development of EV infrastructure here to better compete with China. The Trump administration seems disinterested in supporting electric car development, if not downright hostile towards it in spite of the role Elon Musk has in The White House.
More specifically to the present, though, an attempt to increase jobs is not precisely why the President says this is happening. His reasoning, according to The White House?
President Donald J. Trump is proceeding with implementing tariffs on Canada and Mexico under the International Emergency Economic Powers Act (IEEPA) to combat the extraordinary threat to U.S. national security, including our public health posed by unchecked drug trafficking.
Drugs are bad… fentanyl is bad! A fact sheet from the Drug Enforcement Agency shows that most fentanyl is largely coming from China, though both Mexico and India are also big sources. Canada doesn’t get mentioned in that report, though Canadian law enforcement as recently as a few days ago put on a show of stopping the flow of illegal drugs via arrests.
It doesn’t feel legitimate to me to say that this is about drug trafficking or, at least, if that’s what this is about it feels like setting your house on fire to make s’mores. Damn, I really can’t stop thinking about marshmallows.
This Is Going To Be Potentially Great For China
Let’s not be doomers this morning, if only because in like 30 minutes President Trump could just say “psych” and none of this could mean anything. It might be bad news for American companies, investors, and consumers, but it’s potentially great news if you’re a Chinese supplier. All of this could change, but at the moment it might be cheaper to import parts from China to the United States than from Canada, even though China is apparently a larger source of fentanyl. Sure, cars are way more expensive to import to the United States because of tariffs that go back to the Biden administration, but Chinese automakers don’t sell cars here so that’s not a big deal.
Even better, if you’re a Chinese supplier, what you’re probably doing is making a bunch of parts for carmakers in Japan and South Korea. For… reasons, President Trump isn’t currently doing big tariffs against Japan or South Korea (though those might come). This makes importing cars from Japan or South Korea or anywhere else in Asia (that isn’t China) potentially cheaper than importing cars from Canada or Mexico.
This is also good for Chinese automakers. Not only is the United States proving to be a fickle trade partner, a trade war always involves reciprocity. Hell, the premier of Ontario is already threatening to stop selling nickel to America. If you’ve never been to Sudbury to see the Big Nickel (go Blueberry Bulldogs!) then you might not be aware that America basically solely relies on Canada for this essential material.
If you’re a government anywhere else in the world and you want cars, China might suddenly be a better option. If you’re an auto supplier and you’re looking to sell your supplies, China might suddenly be a better place to do it. If you’re a Chinese company and you want materials or goods, you might now be able to get them at a better rate from countries that don’t want to trade with the United States.
Clearly, I’m not the only one who had this thought.
If you think you’re going to be able to expand then, in the modern era, you borrow money to do that. The biggest maker of electric cars this year will probably be China’s BYD, and BYD just raised a bunch of money by selling a crap ton of shares. Specifically, it sold a bunch of shares to foreign firms like the UAE’s Al-Futtaim Family Office. Why? Usually, so you can spend that money. If you’re a car company, it’s to spend money making cars.
The deal reflects increasingly positive sentiment in Hong Kong and China, especially in the tech sector following a high level summit of tech executives led by Chinese President Xi Jinping. China policymakers have also signalled a higher level of support for the country’s business private sector.
Again, trade wars are unpredictable, and the United States declaring economic war on everyone else will have consequences that no one will be able to likely predict with 100% accuracy. Chinese firms and outside investors seem to be betting that it’ll be good for China in the long run.
Europe To Pause Emissions, Which Is Also Bad For Tesla
It’s possible that President Trump puts big pressure on European car firms by creating higher tariffs on inbound European cars. This high level of uncertainty is bad for European automakers, which is why the European Union, at least, seems to be willing to give them a break.
Specifically, much tighter emissions rules are supposed to go into place this year and the European Commission President Ursula von der Leyen is giving companies three years to comply with CO2 targets, as opposed to just one year.
The announcement is part of the bloc’s push to protect the auto industry, which employs 13 million people and accounts for about seven percent of Europe’s GDP.
“There’s a clear demand for more flexibility on CO2 targets,” the European Commission president told reporters in Brussels. “Instead of the annual compliance, companies will get three years.”
Von der Leyen added companies would still have to “fulfil” the same targets.
“But it means more breathing space for industry. It means also more clarity,” she said after talks on Monday with industry representatives including from BMW, Renault, Volkswagen and Stellantis, which owns several brands including Jeep, Fiat and Peugeot.
This could also be bad for Tesla. If the company sells fewer electric cars in Europe, which is what’s happening, then it has fewer credits to sell. If companies like Stellantis and Volkswagen have more time to meet goals, they don’t have to pay Tesla immediately (or ever) for the credits they have to sell.
The timing of this is interesting, as Bank of America just dropped its price objective for Tesla’s stock from about $490 to $380, though today the price is at… $264 and falling currently. Coincidentally, Tesla’s Board Chair Robyn Denholm has been selling a bunch of her shares, though perhaps that’s just to cover the $919 million settlement she and other directors agreed to pay to resolve allegations that the board overpaid itself.
It’s fine, the Chinese market will bail out Tesla. Right? I’m sorry, I’ve just been informed that Tesla shipments in China dropped by nearly half in February.
Here’s A Škoda For Your Troubles
That was like 2,000 words on a trade war that, for all I know, will be cancelled by the time I get out of the shower. Or maybe it’ll be expanded! As a journalist, it’s all very interesting. As an investor, I’m worried that my 401k is about to turn into a 4.01k.
It was 50 years ago that Czech (then Czechoslovakian) automaker Škoda debuted the 130RS, one of the carmaker’s most iconic models and the winner of numerous races:
It won trophies both within the Eastern Bloc and on the international stage, where it faced tough competition from leading Western brands.
Among its triumphs, the Škoda 130 RS secured a class victory at the legendary Monte Carlo Rally in 1977, finishing 12th overall. Other standout performances include eighth place in the overall rankings at the Acropolis Rally in 1979. In 1981, it repeated this remarkable success, once again demonstrating its ability to outperform significantly more powerful rivals.
The Škoda 130 RS also made its mark on the circuit racing scene, claiming the overall title in the 1981 European Touring Car Championship – its greatest success on the track – after consistently finishing among the top three in previous seasons.
And it looks great. Don’t forget that.
What I’m Listening To Today While Writing TMD
I could use the official video for “Burning Down The House” from Talking Heads, but I’m a damn professional. I’m using the version from all-time concert film “Stop Making Sense.”
Hold tight
Wait ’til the party’s over
Hold tight
We’re in for nasty weather
There has got to be a way
Burning down the house
Apt!
The Big Question
Is this a big deal? Maybe it’s not a big deal?
Chinese companies have a ton of spare capacity. When you can build 3x the cars you are currently building, a world wide recession is not great. Chinese consumers are harmed by the counter tariffs on US agricultural goods, and if they are spending more on food they have less money to spend on new cars.
Maybe the Chinese government will use this as an excuse to encourage mergers and acquisitions, because right now there are many companies only staying in business because of subsidized loans including from local governments.
Thanks for the positive Škoda tidbit!
What an absolute total dumbfuck Trump is, doing this and starting shit w/ everyone…this is not making anything better and not improving anything like they’re supposed to do for citizens (I know that stopped a long time ago) Just shut up and run the country w/o “moving fast” and “breaking things” Quit trying to destroy OUR country (don’t even get me started on melonhuskfuckface…
FUCKING NAZI PIECE OF SHIT!!!)
At this point I have to limit news about them (here it’s ok because cars) or it makes my blood boil. At this point, I can see myself eventually protesting like crazy against these fucking dipshits
I have been saying since Autopian started they need someone who knows economics. Now Matt with his breakdown of the tariffs situation makes an interesting read but clearly he is not a business major. I am done writing a bunch of economics 101 stuff that gets ignored. So just a few comments. First he writes if you are a government anywhere else you want cars. Ridiculous government doesn’t buy cars they take their cut just like the Mafia. Customers want cars. Now if anyone knows anything about economics with the EU finally ramping up paying for an European Army since the US has decided not to finance the Ukraine war on the back of American citizens European countries are talking about actually paying to defend themselves. That means higher taxes or less benefits for social programs. Given the EU has been neglecting defense to underwriting illegals and social programs no way anyone is buying new cars. Hey maybe government will buy cars and give them away. As for Tesla in times of strife people go with their pockets. Since Tesla hasn’t upgraded any cars since they were introduced I bet Elon ordered and produced above demand to have inventory for a longer period. My take care manufacturers need to build cars that people want and forego what Biden or any other government wants and just go with the people. If they get fined sue in the proper court. It was insane to go all in on EV and unproven market and it is proven by hybrids being far more successful. Now that the far left demand to force the market by laws is being removed I would expect ICE cars to be far less expensive since they aren’t financing EVs anymore.
Dumbest shit I’ve read all day. And I’ve been looking.
Yup, anything they write I skip…belligerent nonsense, I’m surprised they learned how to use periods
“Is this a big deal? Maybe it’s not a big deal?”
It’s a huge HUGE fucking deal. It’s huge that it’s affecting product launches, affecting jobs and fucking up industry and trade.
It’s also huge to the point that it will hurt the US economy as well and cause inflation.
And as the economic damage plays out, I think this might be huge enough that the US might see another ‘Luigi’ incident.
It’s a big deal if they apply a tariff on Shoresy singing Jagged Little Pill. Thats when we riot.
Trump should be watching Stellantis! If he tariffs Mexico and the EU then who’s not to say they’d call fuck it and pull out of the US market.
And kill Jeep, Ram, Dodge and Chrysler in the process… they could just do that out of spite, I probably would if I was them right now.
Shit smeared on the walls would be the least of the problems and due to the amount of platform sharing, their not really losing much.
Stellantis pulls out. That’sike what 4 models? And leaving the biggest car market in the world? Well yeah stupid decisions is what Stellantis does. Covid19 screwed up car sales and allowed them to raise prices by twenty thousand dollars per unit. Jack it up nothing sells and the greedy industry has to come back to earth. It is interesting that people attacked the whole car sales dealers model and are now dying to defend it.
It’s all so crazy. I really thought during the first term annexing of Mexico was the plan. Now all this talk about annexing Canada and Greenland I still kind of assume its actually Mexico that they want. Gulf of America? Plus all that with the Panama canal and Mexican efforts to build a trade route. Now military actions against the cartels. Who knows maybe it will amount to nothing. But will definitely be a mess for awhile.
It isn’t just the final cost – ironically it is also EVs imported from Mexico and Canada have a lot of US part content.
Take the Equinox EV as an example. It is assembled in Mexico but has 62% US part content and 18% Chinese All the US parts have a 25% higher raw material cost due to the steel and aluminum tariff. Things like the battery are assembled in the USA (because of the IRA) but from outsourced parts. So those get shipped to the USA – and a tariff is tacked on. Then the battery gets shipped down to Mexico and put into the car. (We will see if Mexico adds their own tariff) Then the car gets shipped back into the USA and gets hit by a 25% tariff. Every time a part crosses the border it gets hit by a tariff – almost like a VAT hits every level of production and lots of auto parts cross the Canadian and Mexican borders multiples times before they get put in a car.
Now someone might say “just assemble the Equinox in the USA”. That could be done in years and at a cost of billions of dollars. OR You could build the battery in China, (saving on raw materials, part cost, and labor), ship it to Mexico, put it in the car, ship the car to the USA, pay the 25% and pass on that cost to the customer.
If the Trump administration and the GOP in congress kill the IRA related tax credits and battery production credits there really is no reason to make batteries in the USA and China does it cheaper than anyone else in the world.
I’m not sure where your info is coming from in regard to the content. Here’s an example sticker from a 2025 Equinox EV:
https://monroneylabels.com/cars/13068965-2025-chevrolet-equinox-ev
The sticker says content is 12% US/Canada and a whopping 46% is from Mexico and 18% from Korea. The Mexican content may well actually be from China but either way it’s not from the US. It may vary a bit car to car based on the trim level but not significantly so.
I don’t agree with the tariffs at all but the Equinox EV is another one of those cars that GM would drape with the Stars and Stripes when the reality is that the majority of it doesn’t benefit american workers.
I’m looking at the NHTSA website for part content that the Monroney label is generated from.
https://www.nhtsa.gov/sites/nhtsa.gov/files/2025-02/MY2024-AALA-Alphabetical-2.4.25.pdf
or search NHTSA Part 583 American Automobile Labeling Act Reports
I can’t explain it except the window sticker seems to break it down more as is more directly consumer facing. It doesn’t on the face of it make sense that something assembled in Mexico has a majority of US/Canada parts in it. The Chevy Bolt which was assembled in the US has a FAR lower US parts content according to that chart.
That chart though – look at the Blazer EV, the Equinox EV and the Honda Prologue EV. Blazer and Equinox have the same numbers but the Prologue has VASTLY different input numbers even though built on the same assembly line. I’m not sure that chart is valid.
Seeing as how Equinox EV in that chart has the exact same breakdown as the Blazer EV, maybe they just copied it? I don’t know.
The chart is directly from the source. The NHTSA is the agency that tracks US part content.
Part content is based on part cost not part count. With an EV the battery is a big part of the value. The Equinox battery is made in the USA – (GM / LG have Ultium battery plants in Lansing, MI; Warren, OH and Spring Hill, TN)
It is odd that the Prologue numbers are different but early Prologues did not qualify for the tax credit due to battery sourcing. Maybe the chart didn’t get updated.
(BTW the chart is from 2024 – the 2025 chart doesn’t have any of the Ramos assembled vehicles yet)
I looked into it a little more – If you do a search on 2024 and 2025 Equinox EV and click through on random examples for sale to some dealers and then have it show you the window sticker which most Chevy dealers offer – the 2024s show the numbers you cited and the 2025s show the numbers I had. Which is really odd. In all cases I looked at (3 of each) it shows the motor and drive unit being built in Mexico, the cars assembled in Mexico, but only on the 2025s does it actually show Mexico as supplying parts content (46 Mexico, 12 US/Canada, and 18 Korea).
That would make sense if GM shifted battery assembly from the USA to Mexico.
The window sticker shows US* part content and the country with the highest part content. Sometimes it will show another. Those correspond to 3 columns in the NHTSA chart.
In 2024 the equinox ev didn’t have enough Mexico part content to register. For 2025 more supplier content has ramped up in Mexico near the assembly factory. Nothing odd about that.
For example – the 2024 chart shows the motors being made in China while the window sticker say in 2025 they are made in Mexico. That makes sense for limited production as the plant starts up. The vast majority of GM’s EVs are made in China so that is where you would source start-up parts. Then as things ramp up and production volumes increase local assembly would make sense.
*It is actually US and Canadian part content. We used to be on friendly terms with Canada.
An argument based on facts. Good job.
Yes but under Biden everyone was all for increasing costs to protect the union jobs. Now Trump is protecting union jobs and everyone is that is bad.
I wasn’t for protecting UAW jobs – but I work with them every day.
This is all about what Americans want. Just one look will tell you Americans want cars. Lot’s and lot’s of cars. The roads are clogged with them, the suppliers are back ordered. They can’t make them fast enough. Clearly demand is outstripping supply, so obviously prices are too low. So, go ahead raise the prices, just make sure the treasury gets a cut!
Also Americans want fentanyl. Lot’s and lots of fentanyl. You can’t have this coming in from other countries and them profiting. America has to make it’s own. Beautiful, beautiful American fentanyl…
war is bad, even trade war.
war never goes as planned (everybody has a plan until they get punched in the face).
war is always much worse than imagined.
winning a war is more dependent on a nation’s ability to withstand pain more than it’s capacity to inflict pain.
If you voted for Trump, or just didn’t bother to vote, thanks a lot, assholes.
But voting is so boring and makes no difference!
If you choose not to decide, you still have made a choice – Freewill by Rush
You are welcome I did it for you even though you don’t understand or appreciate what is good for you.
I’m hoping in the coming weeks to see a picture on this site of two virtually identical cars on a dealership lot, one with a window sticker of say $40,000, and the other at $50,000, with the only difference being a few days apart in shipping across the border from Mexico/Canada. That would be quite the interesting historical picture.
Wrong. They will both be $50,000 because capitalism.
You’re both wrong. The dealer needs his Adjusted Cut – so $55,000, take it or leave it.
It would be funny but you won’t see that. Instead you will see the MSRP go up based on the average cost.
We make a particular model in 3 different assembly plants with significant cost differences between them. We don’t charge the customer different prices based on where the vehicle was made. (If we did we couldn’t sell any vehicles from the high cost US plant)
Likewise you won’t see the price of a model only made in Mexico go up by 25%. Instead we will most likely take the total cost increase incurred by the tariffs and spread it around equally to all models. (At least that is what we did last time when Trump fooled around with tariffs and increased the price of steel by 25% in the USA)
I believe 100% what you wrote. I wonder how do we keep US auto manufacturers jobs that cost more. Let me know fire every union auto plant employee or pay more and have higher prices and lower sales or install tariffs and make the imported cars cost the same while keeping the difference in this country as opposed to more profit for the manufacturer?
You have union workers accept reasonable wages for their skills instead of what they are getting today.
Before the strike and new contract the average UAW worker was making about $65 per hour in wages and benefits. At the end of the new contract they will be making about $75 per hour. You have people running the machine making more than the person that designed the machine. That is not sustainable.
So every time the UAW negotiates a higher wage people like me get assigned to reduce total labor cost to offset the new wage. So that means few hours of more expensive labor – which equals fewer UAW workers. If you look at UAW numbers they have been steadily falling and the average UAW worker is getting older and older and people retire and aren’t replaces.
The more labor costs the faster capital spent on automation pays back. It really is that simple.
As it relates to the topic of tariffs. If you increase the cost of raw materials and parts enough in the USA – it makes sense to build your vehicles outside the USA with lower cost raw material, parts, and MUCH cheaper labor – and then just pay the tariff on the final product. Tariffs hit a product every time it crosses the border and lots of part cross the border multiple times.
Auto companies make pretty poor profits. Ford is at 3%, GM at 6%. It isn’t an industry you get into to make a lot of money. Would you invest in a company and risk losing everything to make less the money can make in a guaranteed saving account? I really doubt it and investors aren’t going to do that either.
Being The Morning Dump, I thought that was perhaps a Trainspotting reference: “The Worst Toilet in Scotland”
Blueberry Bulldogs are just senior whaleshit hockey. Viva Sudvegas!
Its not like we spent 75+ years developing a global hegemony that primarily benefits us, in exchange for the small price of “global security” and the danger of some very localized insecurity if you disagree with that idea. It would be a shame if the most online group of people just destroyed that. Because they were only six feet away from home plate, and they’ll be damned if anyone else is getting to touch home plate but them! The new American Golden Age: Gold color not specified of origin.
July 14, 1789 ver. 2.0 is still an option, right?
If you can pull it off you’ll be a legend. The French Revolution required everyone below the royalty and the church, including small business types and antifa types to throw in with each other, to create the Republic.
As you can see they’re diametric opposite poles now.
We’ll see how much closer they get as times get tougher….
July 11, 1804 seems more appropriate for offended stuffed shirts.