President-elect Donald Trump’s Twitter campaign against the auto industry has gone global. After berating Ford and GM, Trump has now also threatened Toyota with high tariffs for making cars in Mexico for the U.S. market. His attack is now cause for concern for both domestic car manufacturers and those in Japan.
On the campaign trail, Trump repeatedly criticized Ford’s investments in Mexico, and vowed that he would impose a 35 percent import tariff on any cars built in Mexico that Ford tries to sell in the U.S. Now Trump has taken aim at other automotive manufacturers. Early last week, for example, he threatened via Twitter to impose a “big border tax” on General Motors for making some of its Chevrolet Cruze compact cars in Mexico. Trump didn’t provide further details.
Hours later, in surprising news, Ford announced it will cancel a planned $1.6 billion factory in Mexico and will instead invest $700 million in a Michigan factory. Ford’s executive chairman, Bill Ford Jr., said he personally notified Trump of the decision, but after Trump’s early-morning GM tweet.
Ford officials say the revised plans to expand a plant in Flat Rock, Mich., to build electrified and autonomous cars are tied to market conditions which have depressed small-car sales, and that they didn’t consult with the incoming Trump administration before making the decision. Mark Fields, Ford’s CEO, added in an interview that the president-elect’s emphasis on tax changes and cutting regulations should have an overall positive effect on automakers such as Ford.
“We are encouraged by the pro-growth plans that President-elect Trump and the new Congress indicate they will pursue,” Fields said, the New York Times reports.
Moving on though, yesterday, Trump blasted Toyota.
“Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax,” Trump wrote in a post on Twitter.
Toyota broke ground on the $1 billion Corolla plant in Guanajuato, Mexico, in November. Trump’s tweet appears to incorrectly state that Toyota plans to build a new plant in Baja, Mexico. Toyota said in September it plans to increase capacity at an existing plant in Baja that makes pickup trucks, but no sedans.
In reply, Toyota released a statement saying that “Toyota looks forward to collaborating with the Trump Administration to serve in the best interests of consumers and the automotive industry.” It went on to note that Toyota has $22 billion invested in the U.S., which includes 10 manufacturing plants and 1,500 dealerships that employ a total of 136,000 workers. The majority of cars Toyota produces in factories in Kentucky, Alabama, West Virginia, Texas and Indiana are sold in the U.S., and the company exports more than 160,000 vehicles annually from the U.S. to 40 countries.
Toyota President Akio Toyoda said yesterday that the company is aligned with the incoming administration in that it wants to be a good corporate citizen and grow employment in countries where it operates plants, including the U.S.
“If you look over the long term, we are oriented in the same direction,” Toyoda told reporters, the Wall Street Journal reported.
As president, Trump won’t be able to punish GM, or any other company, for building cars in Mexico without violating NAFTA. On the one hand, trade experts agree that presidents have wide latitude to impose penalties on imports, at least temporarily, even if courts later find them unlawful. However, as a recent Bloomberg article notes, targeting a single company with a tariff as Trump threatened to do is unheard of and barred under the North American Free Trade Agreement, according to trade experts.
“The notion of using emergency tariff-raising authority to influence the investment location decisions of a single company would be an unprecedented use of that authority and far beyond what Congress ever intended,” Edward Alden, a trade expert at the Council on Foreign Relations, says in the Bloomberg View article. “Turning those powers on a single U.S. company because you don’t like its strategy just takes us to a whole new realm.”
Then again, the mere threat of a tariff or other punishment may be enough for Trump to get what he wants. Since winning the election, he has pressured companies to change their business plans—such as when United Technologies Corp. unit Carrier announced in November it would keep a furnace plant in Indianapolis open instead of moving about 850 jobs to Mexico, and, as Trump appears to be doing now.
What do you think? Are President-elect Trump’s threats of tariffs influencing companies’ plans about where to source operations?