Now, I try not to get to political because my podcast is about cars and not ideologies, but the truth is the automotive industry is heavily affected by the actions of politicians, so every once in a while, those actions are worth exploring if only to evaluate their impact on our favorite past times; cars and driving.
The policies in play this week are all about import tariffs, taxes placed on things made outside the United States for the simple fact that they were not made in the United States. Last week it was steel and aluminum, both of which are critical components in cars and which are rarely made in the United States anymore. China, specifically, is one of the world’s leading exporters of steel and and the theory is that, by imposing a tariff on Chinese steel, companies would rather purchase steel from US steel plants because it’s cheaper, thereby creating jobs in the steel manufacturing sector and leading us all to live happier, more fulfilling lives knowing that we provided people with some work.
The problem with that theory is, companies that use steel don’t exist to create jobs or give everyone a warm, fuzzy feeling inside. Unless that company is Chipotle, companies exist to make money and they will fight tooth and nail for every profit margin possible. That means that, when something costs more to make, they will charge consumers more to buy it, leading to price inflation and a lower quality of life because people have less money after spending it all on whatever they are buying with steel or aluminum in it. Like, for instance beer cans or my beloved Diet Coke.
This week, the conversation turned from raw materials to completed cars, when Trump proposed implementing a tariff on European vehicles, claiming that the US had been treated very unfairly by the European Union. The EU responded by saying they would tax Harley-Davidsons if such tariffs were applied to their vehicles. And let’s be honest, people are not going to go buy a Cadillac instead of a Mercedes just because a 10% import tariff has been applied, they’re just going to pay more for the Mercedes and hate the government.
The apparent issue at the core of this is that Trump thinks that, because the US has a trade deficit, that means that everything is all wrong and we’re losing and everyone else is winning and we need to be the ones winning, when that simply isn’t the case.
Here’s a quick explanation of the trade deficit; I go into Chipotle and I get steak tacos, I have a trade deficit with Chipotle and I have to pay them for the product I received. This is partially because it’s more expensive to go buy the ingredients myself, but also because I am lazy and by having Chipotle do the hard work for me, my quality of life is higher.
And that’s what it boils down to: quality of life. The primary argument for implementing tariffs and reversing the trade deficit is to create jobs, but that effort is doomed to fail because we have things like the minimum wage here, and health and safety rules that make the production of goods more expensive than they can be produced in China or most countries in southeast Asia, where there is little to no worker protection. And why have those regulations in place that guarantee a certain hourly wage and working conditions that aren’t likely to wind up in employees dying? Because we want a higher quality of life. Part of the price we pay for that is a trade deficit, where we consume more than we create, product-wise. What we also get are cheaper goods, access to more and varied items and low inflation.
And now we’re at a point when our chief executive is calling for a trade war that he insists is good and will be easy to win. What we’ll get with a trade war is more expensive raw materials, more expensive products, access to fewer items, higher inflation, higher debt from greater spending on more expensive items and the accompanying high inflation, which will likely increase personal bankruptcies and lead to actually fewer jobs than it will create because we can never truly compete with our trading partners in some sectors. Especially after we learned this week that Americans owe more than $1 trillion in car loans, and we’re borrowing record amounts of money to buy cars, often at deep subprime interest rates, we simply cannot contemplate policies that will only cause us to plunge deeper into personal debt. There’s no such thing as a good trade war, and there are no winners. In a trade war, everyone loses, including us petrol heads.
Authored by
Devlin Riggs