First Fallout From The Midterm Elections

The automobile assembly and automotive parts supplier sectors have been key to Michigan’s recovery from the Great Recession, and the increased tax revenues collected by Michigan’s many units of government. These sectors have been riding a wave of expansion – and hiring – in Michigan since President Trump announced his intentions to impose higher tariffs on European vehicles and parts on May 23rd.

Although these tariffs were proposed under national security statutes, Trump clearly intended to retaliate against the 10% tariff the EU imposes on all American-built vehicles and parts. The U.S. currently imposes 2.5% maximum tariffs on European cars, trucks, and parts. so European made vehicles and parts enjoy a 7.5% advantage over American vehicles and parts in direct trade.

It now appears that the Trump Administration is going to delay or abandon these proposed tariffs. A Bloomberg article posted last night reports on a meeting held at the White House Tuesday which put off automotive tariffs for the foreseeable future. A draft report on U.S. – European trade was sent back to the Commerce Department for reconsideration, a polite way of killing it. That report must be issued before any tariffs can take effect.

The November 6th election outcome just killed that.

The remission of automotive tariffs is an election outcome, but in a roundabout way. Tariffs are imposed through the Commerce Department, which is led by Secretary Wilbur Ross. Ross has been under intense attack by the Democrats since he was nominated and, now that the Democrats control the House of Representatives, Ross will be a special target of the Democrat’s ‘subpoena gun’.

Commerce Secretary Ross is now expected to resign and any impending tariffs which he championed within the Trump Administration are unlikely to ever develop. It is not clear whether the tariffs already imposed on other foreign goods by the Trump Administration will be withdrawn, but this is a distinct possibility. It will likely depend upon who replaces Wilbur Ross as Commerce Secretary.

The end of potential automotive tariffs will be good for corporate profits in these sectors, but bad for employment as the automotive sector resumes outsourcing.  Due to transfer pricing games, subsidies, and corporate income tax gamesmanship, tax revenues from the automotive sector are derived mostly from employment taxes, rather than corporate income taxes. The stock prices of foreign car manufacturers and car parts producers have surged since this report was published 12 hours ago.

The effect upon Michigan? Depends upon where you sit in the economic food chain.