Trump Is Trying to Drive Automakers Crazy Again

(Bloomberg Opinion) -- It appears America First doesn’t necessarily mean American businesses first.

The Trump administration wants to unilaterally dictate how global automotive companies manage their supply chains within the terms of a replacement to the North American Free Trade Agreement that’s still awaiting congressional approval, people familiar with the matter told Bloomberg News. The U.S.-Mexico-Canada agreement signed by President Donald Trump in 2018 allows for a transition period for automakers to meet new rules for tariff-free production that include sourcing 75% of a car from the three countries and 40% from factories that pay an average wage of $16 an hour or higher. The language governing that transition period could give the White House the ability to favor one automaker over another and to pressure companies into making investments that it wants to see, the people told Bloomberg News.

So much for the USMCA agreement providing certainty to businesses — and so much for free markets.

In the immediate term, the Trump administration’s efforts to dictate how and where automotive parts are built risks ballooning costs for an industry already grappling with weaker demand for sedans. It also raises the risk of factory decisions being used as political currency in swing states, an almost unfathomable shift in U.S. policy.

What’s mind-boggling about this push for control over automotive supply chains is that it entails the same kind of government oversight and closed-market mentality that U.S. companies and the government have (rightly) criticized in China. This should raise red flags for manufacturing companies about the longer-term ramifications of the “phase one” deal the U.S. is currently negotiating with China. It’s perhaps worth asking again what Trump is really trying to solve in his trade war with China.

The two sides appear to have made progress on agricultural purchasing commitments and some intellectual property and currency provisions. China has also pushed ahead with a loosening of foreign investment rules. But it remains unclear if and when the Trump administration will remove existing tariffs on China and if there will ever be a “phase 2” deal. It doesn't seem as if the Trump administration's intent is to make it easier to do business in China — or Mexico and Canada. Or even the U.S., for that matter. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

©2019 Bloomberg L.P.