E The Achilles Heel Of Trump's Tariffs

The Trump Tariff plans have an Achilles' Heel. We know that there are basic weaknesses that can be found in all tariff plans. For example, the consumer in the US is very weak, tariffs have failed in history, etc. But the real weakness of the plans for our time is the global supply chain.

As auto companies turn on Trump, we are learning more about them. General Motors has said it may have to shrink the presence of its operations in America, and we can read into this, to avoid tariffs from Europe and the rest of the world.

Cars made in the USA are loaded with a certain percentage of foreign parts. It is this supply chain reality that makes it impossible for companies like Kia to put more factories in the US while tariffs are in place. The investment would be huge, and immediately roughly 30 percent of the car would be subject to tariffs. Cars.com America Made Index shows that the most American car, the Jeep Cherokee, percentage wise, still has 28 percent of parts from elsewhere. This will raise prices on all American pickup trucks as well, which already carry a protective 25 percent tariff which shoves prices upward!

Unfortunately for the American auto image, Toyota and Asian imports are the least expensive cars to maintain, so made in America also comes with a big repair tariff-like expense!

I suppose Donald Trump could test this Achilles Heel. It almost seems that he wants to because he wants to pull out of the World Trade Organization. He wants to institutionalize his policy.

United States Manufacturing Continues to Grow But at a Slower Rate. Watch This Indicator if Tariffs Ramp Up.

 

Moody's has warned that Trump tariffs may cause a credit downgrade of automakers: 

 

“Tariffs on imported cars, parts would be broadly credit negative for industry.“ A 25% tariff on imported vehicles and parts would be negative for nearly every segment of the auto industry — carmakers, parts suppliers, car dealers, and transportation companies … Should any tariffs be levied, carmakers would need to absorb the cost to protect sales volumes while hurting profitability; increase prices to pass the tariff costs to customers, which could hurt sales; or a combination of both.”

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Disclaimer: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. The ...

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Gary Anderson 3 months ago Author's comment

It has to be pointed out that to retrofit a car to meet Europe specifications, the cost is 30 percent added to the sticker price. Even if tariffs and taxes on American cars went to zero, Europeans would still not buy them. American companies would not likely invest in Europe. So Trump will lose the auto trade war with Europe no matter what he does. He will want to stop European cars from entering the USA once he realizes US cars won't sell there without tariffs. It could get ugly.

Dick Kaplan 3 months ago Member's comment

History certainly does repeat itself. And those who can't learn from history are doomed to repeat it. I wonder why #Trump is so convinced he'll be able to succeed where all others failed.

Angry Old Lady 3 months ago Member's comment

The answer is simple Dick Kaplan: Ego.

Bill Johnson 3 months ago Member's comment

This was an incredibly well researched, eye-opening article. Just facts, no sensationalism. The author clearly makes an excellent case and has changed my opinion on this issue. I highly recommend this read.

Gary Anderson 3 months ago Author's comment

Thank you, Bill. History is against Trump and you add the supply chain and ratings issues and many things complicate the Trump plans.

William K. 3 months ago Member's comment

This would not be the first time that our leaders have made really dumb moves. But sometimes the impacts are far worse than other times. Unfortunately, this is looking like one of those "far worse: impact times. We may be doomed!

Alexis Renault 3 months ago Member's comment

So what is the opposing argument? If #tariffs are so obviously bad, why are #Trump and his supporters pushing so hard for them?

Gary Anderson 3 months ago Author's comment

That is a good question. Trump believes other nations will fold. I believe that he has underestimated their resolve, but we will see.