Even if you’ve been living in a cave for the past year, you’re likely aware of the controversy over trade U.S. president-elect Trump has created with his promises during the election campaign and his tweets since. Adopting a protectionist stance, he has promised to walk away from trade deals and impose new tariffs on imports. It’s hard to overstate the global implications of that.
His posturing is already starting to have an impact on industry.
In an apparent effort to shield his firm from potential future tariffs, Mark Fields, Ford’s president and CEO, appeared on CNN last week to say his company has decided not to go ahead with plans to spend U.S.$1.6 billion on a planned production facility in Mexico. It will, instead, build in Michigan to get the same job done. That in spite of the fact he has previous publicly stated Ford sees a cost reduction of about 40 percent when building vehicles in Mexico.
Immediately following another Trump tweet threatening large tariffs against Toyota, which plans to build an assembly plant in Mexico to assemble the Corolla, the company’s share price fell dramatically.
In a conference call with reporters a week ago, The Globe and Mail reported Trump’s White House press secretary Sean Spicer said, “He (Trump) has been very clear throughout the campaign, that his goal is to put America first, to restore America’s manufacturing base, and so it’s not a question of a particular country vis-a-vis the United States.”
That suggests production of anything bound for sale within the U.S. that is made in any other country may be subject to new trade tariffs, and that NAFTA is likely soon to be history.
“There is a 100 percent chance of a trade war,” commented U.S. political correspondent Scotty Greenwood, during last Sunday’s airing of CTV’s Question Period. And manufacturers, at least in the auto sector, seem to be building bunkers—figuratively speaking—to protect themselves from any fallout.
Right now no one in the manufacturing sectors that produce the vehicles and equipment Canadian farmers depend on is at all certain of the future. Even without enacting new legislation, Trump has already disrupted corporate decision making and influenced company share prices. (Ford’s actually went up after Fields’ announcement.)
“It’s new territory for most of us (in the auto sector),” said Sergio Marchionni, chairman and CEO of FCA (Fiat Chrysler Automobiles) during a press conference at the Detroit Auto Show this week. “We’ve never had a tweeting president before.”
Trump’s often-angry tweets, directed at everyone from Meryl Streep, to major corporations, to China, have caused a lot of gnashing of teeth in the corporate world, because of the uncertainty they create. The stability of trade in North America—and, in fact, the world—is now off balance, and many corporate executives have fallen back into a wait-and-see mode.
“I’m in the dark as much as you are,” continued Marchionni. “We need clarity… It’s put everything back on the back burner for the time being.”
In the event Trump does follow through with a trade wall, particularly along the Mexican border—which would be far more significant than any physical wall—manufacturers will need to reorganize production. As an example, Marchionni said his company has recently made provisions that would allow it to bring heavy-duty Ram truck production to Warren, Michigan, from its current home in Mexico if necessary.
So far, he adds, FCA still plans to go through with its previous commitments to further invest in Canada, but the same can’t be said for anything in Mexico. “I think it’s impossible for me to tell you I would consider any additional round of investments in Mexico,” he said. You have to think that if Trump turns his attention northward at any time in the future, executives would feel the same about investing here.
Toyota hasn’t said much yet about changing its plans for Mexico. But you have to think executives there are considering how they could put the brakes on their construction plans.
The swirling uncertainty isn’t limited to the auto sector. When it comes to ag equipment, John Deere has several production facilities in Mexico, too, that could be at risk.
The reason brands looked south to Mexico when deciding where to build plants was to keep the cost of production down. Would a wholesale movement of manufacturing back to the U.S. to avoid tariffs increase the cost of new vehicles and ag equipment? Will Trump be able to get support from Congress in order carry through on his threats? Does he even need it, given what we’ve seen so far? Nothing is really clear. And that’s not good for anyone.
“We need clarity, and we need rules,” said Marchionni. “And right now they’re all on the table.”