President Donald J. Trump didn’t wait long to act on his campaign rhetoric moments after being sworn in as the country’s 45th president of the U.S., by reiterating his intent to withdraw from the Trans-Pacific Partnership and that he will renegotiate the North American Free Trade Agreement. In an attempt to keep auto manufacturing jobs in the U.S., President Trump is now looking at non-tariff type protectionism in the form of environmental standards being imposed on foreign car manufacturers.
Sometimes the best intentions have unintended consequences. According to the Center for Automotive Research in Ann Arbor, Michigan, which is a funded advocate for the auto industry, “Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle parts and components trade within North America will result in higher costs to producers, lower returns for investors, fewer choices for consumers, and a less competitive U.S. automotive and supplier industry.”
One can find it interesting that Trump is now attempting to utilize the once embattled Environmental Protection Agency. Trump would like the EPA to investigate the possibility of placing environmental regulations on foreign cars, similar to those already on American manufacturers. The desired result is that imported vehicles would then be more expensive in comparison to their American counterparts. Use of the Clean Air Act and others would place additional hurdles on foreign made cars.
How can we be sure that this will not actually increase the price to consumers as non-tariff restrictions are put in place? As with recent tariff talk, such proposals could again bring unwanted volatility to the financial markets. There is a basic reason for protectionism in economics. It is that a country or an industry is not competitive worldwide. According to a report by the Brookings Institute, “If these goods were being imported before, it is because American producers were not competitive enough to begin with; therefore, the American version of these goods are more expensive.” The absence of foreign competition could also lead to higher prices. The threat of retaliation by U.S. trade partners could also put American jobs in jeopardy.
Many think tanks like Brookings and academicians will concur with the above U.S. BLS data, finding manufacturing growth has slowed, and tariffs and non-tariff regulations will ultimately harm the American economy. It may or may not be easier to place non-tariff regulations on imports, but the fact remains that in some manner American manufacturing workers need employment. The Brookings Institute report again states, “Trump would be better off by training American workers for new jobs in advanced manufacturing or the service sector, for example. Trade protectionism is the wrong policy because it hurts consumers and puts a check on productivity.”
If Europe is the canary in the coal mine, auto sales will continue to fall in the U.S. Cash strapped millennials are opting for Uber and other forms of non-vehicle ownership transportation. Americans have had a love affair with the automobile since its inception. It will be interesting to see how this plays itself out.