Tariffs are bad policy – and Trump keeps making disastrous trade deals because of it | Opinion
Trump's tariffs have already collectively cost American car manufacturers billions of dollars. That isn't sustainable – and it gives foreign automakers a leg up.
- The Trump administration's new tariff deal with Japan disadvantages American automakers.
- The deal lowers tariffs on Japanese car imports to 15%, while American manufacturers face 25% tariffs on imported parts and 50% on aluminum and steel.
- This disparity, coupled with the chaotic implementation of tariffs, has cost American companies billions and led to Ford's first quarterly loss in two years.
The Trump administration has struck a tariff deal with Japan, marking a significant accomplishment ahead of the Trump-imposed Aug. 1 deadline for deals to be reached.
But the deal has some obvious problems, namely with how it fits into the automotive industry landscape. As it stands, the tariff burden on Japanese manufacturers importing their vehicles to the United States is lower than that on domestic producers importing their materials. American automakers are not happy with the deal.
President Donald Trump’s latest trade deal with Japan serves to demonstrate how little administration officials actually understands what they are doing in the trade policy arena. Tariffs are bad policy – and Trump's tariffs are being implemented in the most chaotic manner possible.
Trump's trade policy doesn't even give US car companies a leg up
Proponents of tariffs love to claim that their policies will incentivize domestic production, but the reality is that they add additional burdens to domestic producers. The Japanese trade agreement spans many sectors, but this idea can be seen clearly in the automotive industry.
American car manufacturers are charged tariffs of 25% on imported parts and 50% on imported aluminum and steel. The costs of tariffs on importing components and raw materials essential to vehicles only serve to drive up production costs for those companies doing what Trump wants, building in America.
These tariffs have already collectively cost domestic producers billions of dollars.
Ford alone lost $800 million to tariffs in the second quarter and expects to lose $2 billion this year. Ford has rather admirably taken on a great portion of the costs of these tariffs themselves rather than raising prices, but because of that, tariff policies have resulted in Ford’s first quarterly loss in two years.
That isn't sustainable.
Not only are these tariffs costing domestic producers money, but they are also disadvantaging them against foreign competition. Japanese car companies face a tariff of just 15%, thereby further incentivizing the import of Japanese cars over domestic production. This rate is also notably lower than the 25% rate on vehicles coming from Mexico and Canada, both of which produce vehicles for American car companies.
There's an even greater irony in that fact because Japanese manufacturers, such as Toyota, have announced expansions to their already existing U.S.-based manufacturing plants. It turns out that continuing production in Japan will be better.
Tariffs are bad – but Trump's aren't even doing what he claims
The backward effects that tariffs are having on domestic car production are a perfect example of how dysfunctional this administration’s policy is on the issue. Even the tariffs that are put into effect don’t achieve what they purport to.
In the case of cars, they are doing the opposite, giving manufacturers from a foreign nation an artificial leg up over American ones.
In this case, the disparity is a result of negotiated deals taking place at different times. Trump is rewarding Japan by coming around to make a deal before both Mexico and Canada.
Another area of concern is the sudden and unexpected shock of tariffs, often with little advance notice to the impacted industries. Tariffs don’t make sense, but they make even less sense when there is no phase in the window in which companies can change their manufacturing practices to avoid them.
Nor can any company be faulted for not rapidly changing any of their practices, given the fact that Trump’s tariff policies have changed by the week, or sometimes even by the day. The volatile nature of these policies has made it impossible for any affected parties to make reasonable decisions going forward.
This administration's dysfunctional approach to tariffs has resulted in a headache for everyone involved. While everyone suffers, domestic producers end up getting the short end of the stick. None of this is good.
Dace Potas is an opinion columnist for Paste BN and a graduate of DePaul University with a degree in political science.