Tariffs Are Bad News for U.S. Automakers

Who knows what is best for a business? Its owners or the government? Since the Trump administration announced plans to impose a 25 percent tariff on imports of autos and auto parts into the U.S., the stocks of GM, Ford, and Stellantis have all fallen. Tellingly, Stellantis (which includes Chrysler in a portfolio of carmakers, including Fiat, Peugeot, and others) was down by the least, perhaps because investors believe the tariffs would end up hurting the big, traditional American automakers the most. Tesla’s stock was up slightly. The cars Tesla sells in the U.S. are all made here, and while the company will pay a tariff on some imported components, the hit it is taking is far less than that for other manufacturers located here.

The problem for shareholders in America’s automakers and, for that matter, car buyers here in the U.S. is that the administration does not appear to be too concerned about any (supposedly) short-term pain that either may suffer. The government is attempting to restructure the U.S auto sector on a basis driven more by ideology — its determination to force more car production to be located within U.S. borders — than economic efficiency. This is an approach, to take some extreme but not entirely irrelevant examples, associated with some of the more disastrous economic experiments of the last century, from Soviet central planning to Argentine import substitution. Neither were engines of prosperity.