Update: Ford has now announced a $1 Billion loss and planned layoffs.
Read on to see how Trump’s amazing ignorance has adversely affected a great American company….
On September 9, Donald Trump wrote one of his usual inane tweets in response to a story about Ford cancelling the importation of a line of its automobiles that are made in China:
Trump’s tweet was in response to this story:
Ford Motor Co. is canceling plans to import a new crossover model from a plant in China after President Donald Trump’s tariffs undermined the business case for bringing the vehicle to the U.S. market.
Trump’s move to slap China-built autos with an additional 25 percent levy in July undermined the profitability of the Focus Active that Ford planned to start shipping into the U.S. about a year from now, said Kumar Galhotra, president of North American operations. The company decided it wasn’t worth investing more money in a vehicle that would have had fewer than 50,000 unit sales a year in the U.S.
Trump thinks that now Ford will build that model in America. But they won’t. What Trump doesn’t understand is that different auto models are popular in different parts of the world. Ford F-150s are popular in America. As a result, they are assembled in America (Dearborn, MI and Kansas City, MO, to be exact). Other Ford models, like the Ford Focus, are more popular in Europe and Asia, so they are assembled in Germany and China. This is how all of the large auto manufacturers, Foreign or Domestic, operate now.
It is simply more efficient to assemble a model where the model is most popular.
This is why foreign automakers BMW, Toyota, Honda, Mercedes Benz, Nissan, Volkswagen, Hyundai, Kia, and Volvo all build models in the United States and employ American workers. If there’s one thing that should be done to help American workers, it should be to unionize the workers in these Foreign auto assembly plants. That would actually help American workers. Cutting off trade doesn’t help Americans in any way.
In this particular case, the assembly location of the Ford Focus Active model is not going to change. They will still be assembled in Germany and China, where they are most popular. What is changing is that Ford will no longer import any of these to the United States to be available for purchase by American buyers.
The Dearborn-based company issued a statement in response to the president’s tweet:
“It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment. Ford is proud to employ more U.S. hourly workers and build more vehicles in the U.S. than any other automaker.”
A trade war actually hurts one of America’s most iconic companies, Gabrielsen said. “This forces Ford to forfeit the sales they would have had if they could continue to import that low-volume niche vehicle.”
The end result of this is that American consumers will have one less option to choose from when going to buy a car. This is what happens with trade wars. Nobody wins. Companies lose. And consumers lose. Everyone loses.
The other ridiculous aspect of all of this is that Donald Trump’s proposed solution to the non-existent problem of trade deficits is a trade war that will do nothing about the trade deficit. All it will do is reduce the amount of overall trade. We may import less, but we will also export less. In fact, so far, Trump’s trade war has only increased the trade deficit he keeps griping about.
New data out Wednesday showed the U.S. trade deficit in July widening at its fastest rate since 2015 as monthly deficits with China and the European Union both hit new records. In the year so far, the U.S.’s overall goods and services deficit is up by $22 billion, or 7 percent, versus the same period last year.
So, Trump’s trade war is actually widening the trade deficit he wants to decrease (for no good reason). And, back to his comment about increasing GDP: it is set to do the exact opposite. Because the one thing that trade wars do is reduce the amount of overall trade, which is not good for any economy involved in the trade war.
Andrew Hunter of Capital Economics said the trade data released on Wednesday indicated that after boosting GDP figures in the second quarter, net exports would subtract from it in the second half. In the third quarter, he predicted, net trade would subtract more than a percentage point from GDP growth while the recent surge in the dollar suggested that trade could be a “modest drag” in the fourth quarter too, even before the impact of tariffs starts to take hold.
Not only is the trade war going to reduce GDP, it is also causing inflation.
Steel prices are up more than 40 percent since Trump said on March 1 that he planned to impose a 25 percent tariff on steel imports and a 10 percent levy on aluminum. That is a significant increase that has yet to be passed through to consumers. But it will, and when that happens, potential risks to both the stock market and the economy increase dramatically.
As steel prices rise, it makes major appliances, machinery, trucks and cars, and construction more expensive. Guess what that does to the price of eggs, bacon, milk, orange juice and coffee? Aluminum is in everything from transportation to packaging to cooking utensils. When steel and aluminum prices rise, so too do the prices of refrigerators, dishwashers, stoves — and the cost of your lunch.
And that inflation is eroding any minimal gains that are being made in wages.
Prices rose at their highest clip since 2012 over the past year, the Labor Department reported Thursday.
The 2.9 percent inflation for the 12-month period ending in June is a sign of a growing economy, but it’s also a painful development for workers, whose tepid wage gains have failed to keep pace with the rising prices.
The cost of food, shelter and gas have all risen significantly in the past year. Gas skyrocketed more than 24 percent, rent for a primary residence jumped 3.6 percent and meals at restaurants and cafeterias rose 2.8 percent.
Prices have risen roughly at the same rate as wages, erasing any gains workers may have hoped to realize via bigger paychecks.
Not to mention the damage the trade war has already done to farmers, necessitating an expensive taxpayer bailout.
The Trump Administration has announced a multi-billion dollar aid package for US farmers.
It is being seen as an admission that Americans are being hurt by the president’s protectionist policies.