Why The Entire Automotive Industry Is Holding Its Breath

I sometimes think the conspiracy theorist’s belief that a secret cabal is controlling everything is less a fear than a hope. It would be comforting to think that a group of, I don’t know, cheesemongers in Milwaukee had a plan for everything, and the drone sightings in New Jersey, the emergency of Bird Flu, and Tim Allen getting a new TV show somehow fit into a grander plan instead of just being random and not interconnected.

David is on his honeymoon and so this is going to be a Morning Dump where I get to talk about late 19th-century trade policy because he’s not here to stop me. Enjoy the beach, David! All the news this morning and, frankly, since the election has been about the giant trade implications of what an incoming President Trump might do.

A lot of policy requires the new administration to wrangle bills through a fractured Congress, but trade is a place where the executive branch is endowed with a decent amount of power. This has many companies waiting to see what happens next. Where will Jeep build the new Cherokee? In the case of Chinese exporters, there’s no waiting, they’re exporting as much as they possibly can right now.

The same concerns over trade are impacting Thailand, which has become the “Detroit of Asia” and where that country’s own trade policies are causing Japanese and Chinese automakers to vie for influence.

Let’s Talk About The Stehli Silks Corporation Of America

One of the major debates in the United States in the 1800s was over what to do about the tariffs that had come to be a key source of revenue and strife, both before and after the Civil War. These import taxes, along with income taxes, helped the country rebuild after the war and experience a period of industrial growth/wealth building in the late 19th century (for some, at least).

Republicans and Democrats at the time both agreed that something needed to be done to reduce the government’s budget surplus. They just didn’t agree on how they should do it. Here’s how one paper on the topic summed up the views:

Fashioning themselves as “tariff reforms,” the Democrats proposed reductions in import duties. They believed that this would reduce government revenue, ease the tax burden on consumers and farmers, and eliminate inequities associated with special interest protection. The Republicans, by contrast, argued that any tariff reduction would stimulate imports and raise even more revenue. Furthermore, they contended, lower tariffs would expose American industry and workers to foreign competition and thereby jeopardize the economic well-being of the country.

President McKinley and the Republicans prevailed and the “McKinley tariffs” were eventually put into law.

We don’t have to worry about a budget surplus these days, though many of the same issues continue to be debated. I was thinking about this over the weekend when I visited New York’s Metropolitan Museum of Art (The Met) and ventured down a wide set of stairs to look at the Jazz-Age silks of the Stehli Silks Corporation.

This company was originally founded in Switzerland and set up a New York office in the late 1800s to try and sell fabrics here, but a new tariff encouraged them to expand and create a subsidiary that would make silks in Lancaster, Pennsylvania. This wasn’t something that was yet common and it’s funny to think of Stehli Silks as one of the original multinational corporations, but it sort of was. Before long, the Pennsylvanian operation dwarfed the European one. In that sense, tariffs worked as Republicans expected (pedantic historical note, this specific tariff was the Dingley Act).

In most other ways, the increased tariffs were a massive failure. As argued in the paper above, tariff revenues increased at the same time the economy slowed down, having the opposite outcome that was anticipated. More importantly for Republicans, the reaction to the economic impact on regular people caused the party to get absolutely demolished in the next round of elections.

Eventually, it stopped making sense to make silks in the United States and those operations were shut down. The mill complex has since been converted into fancy lofts.

Where Will The Jeep Cherokee Get Built?

Jeep is in trouble, from a sales perspective, and desperately needs a new Jeep Cherokee. The company will show the new hybrid Cherokee soon, but where it gets built is another question. While then-CEO Carlos Tavares was in charge the assumption was that it would be built in Mexico or, maybe, in Canada.

Now? It’s unclear according to Stellantis exec Antonio Filosa. Per Bloomberg:

Filosa said Stellantis is working on many different scenarios, indicating the model could be made elsewhere, including the US.

“We will work to generate jobs in the US,” said Filosa, who added that he has not personally spoken with the president-elect. “After the decision of Mr. Trump and his administration, we will work accordingly.”

Does that mean Belvidere, Illinois is back on the table?

All of this is because President-elect Trump has expressed his desire to enact a series of tariffs on various countries, although it’s not entirely clear how much of a tariff, on what, and on which countries. China is certainly on the list, but the incoming President has said various things at various points in his campaign and since, so it’s not yet clear how any company or country can respond in the long term.

Unlike repealing the Inflation Reduction Act, President Trump will have more leeway to make instant decisions regarding these tariffs.

Chinese Exports To US Surge By 15.6% Y-o-Y

I said that the automotive world is holding its breath, but there are two notable exceptions to this. First, is Trump consigliere/Tesla CEO Elon Musk. Rather than wait to see what happens, Musk has put himself into a position to shape outcomes. Granted, it’s not clear how long that’ll last (the old Trump whisperer, Steve Bannon, has vowed to remove the “truly evil” Musk by Trump’s inauguration in a week).

China, also, isn’t taking any chances. According to Nikkei, Chinese companies have ramped up exports in advance of the handover to a new administration, with China exporting 15.6% more items (including car parts) to the United States than they did in 2023.

In recent months, some American importers have been rushing to hoard Chinese goods in anticipation of fresh trade barriers with the return of the Trump administration. The incoming president has said that he will charge an additional 10% tariff on goods from China on his first day in office, after pledging to slap tariffs of up to 60% on all imports from the country during his presidential campaign.

That’s not all. Exports to other Asian countries have increased, leaving some to wonder if China isn’t trying to route goods through other ports to avoid tariffs.

Making issues more complex for everyone is that shipping itself, which is how most goods are shipped internationally, is also in murky territory as Manager Magazine reports:

Several of the most important sea routes are currently under threat: pirate and rebel attacks, wars that have broken out or are threatening, politicians’ desires and climate change – the shipping routes are also in a multi-crisis. The fact that the designated US President Donald Trump (78) is now reaching for the Panama Canal and the head of the canal is already warning of chaos is just the latest twist.

Pirates! Control of Panama! Trade Wars! History truly does repeat itself.

Toyota And China Fight For Influence In Thailand

The United States isn’t the only country whose industrial and trade policies have automakers scrambling. Thailand has become a new market for automakers and a place where companies, especially Chinese ones, build cars.

This is how Thailand became the “Detroit of Asia.” It helped that Thailand gave huge subsidies to carmakers who built EVs in the country, basically requiring a balance between exports and imports. Chinese automakers were fine with this arrangement until the market for EVs slowed in Thailand. At the same time, discounts for hybrids benefitted Japanese automakers like Toyota.

What’s the future? Toyota and Japan would like to make the future a little more hybrid according to Nikkei:

Toyota Motor Chairman Akio Toyoda met Thai Prime Minister Paetongtarn Shinawatra last month in Bangkok to discuss ways to lift Thailand’s auto industry as a whole, from parts suppliers to automakers. Toyoda stressed the country’s importance as a production and development hub, while Paetongtarn signaled an openness to government measures to promote hybrid vehicles.

“With demand for EVs slowing, Toyota sees this as a great opportunity to ramp up its lobbying efforts,” said a Japanese government source in Thailand.

On the flipside, Chinese automakers have argued for reductions in the amount of imports necessary to qualify for incentives. It’s not clear who is going to win this round, though Japanese automakers still make up a vast majority of sales in the country. It probably behooves Thailand to keep both Japan and China happy as it, too, hedges.

What I’m Listening To While Writing TMD

Did you know that The Specials released their debut album over 40 years ago? That’s a long time. Please enjoy “A Message To You Rudy” and take to heart the message about no longer messing around, starting to think about the future, overall straightening right out, and stopping with all the problems you’re creating in town.

The Big Question

What’s going to happen? A lot? A little? Nothing at all?

Lead imagine: gints.ivuskans/depositphotos.com