The Donald Trump Effect on Cars

By Henry Leung - November 22, 2016

Unless you’ve been hiding under a rock, you know by now that Donald Trump will be President of the United States by January of 2017. Whether you think he is a racist fascist or a champion for the people, the fact is that Trump will be the leader of the largest economy in the world and also the world’s biggest automotive market. How do his campaign promises affect the auto market?

Trump spent much of his campaign threatening Ford, General Motors and Chrysler for moving their automotive manufacturing out of the United States. For example, he threatened Ford with 35% import tariffs on new car parts from Mexico, after Ford made a new factory announcement in Mexico. Besides, he has threatened to revoke trade agreements including the North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership. These trade agreements are what have allowed automotive manufacturers to make vehicles at a relatively low cost. Because of globalisation, my Volkswagen was not made in Germany, but instead in Mexico, where labour wages are much lower. Trump’s protectionist and nationalistic policies have also encouraged European countries to take similar stances. While Western Europe has traditionally been pro-trade, more and more far-right parties are gaining popularity and discouraging free trade.

For car enthusiasts, this is bad news. If all cars from the Big 3 (General Motors, Chrysler, Ford) were made in the United States, economists estimate that this could add $5,000 or more to a cost of a small car; that would be a massive 25% Trump-size increase of a cost of a compact car. The growth of car costs is not limited to the United States; if North American free-trade agreements fall apart, it is sure that similar agreements in Europe and Asia will also fall. This will lead to a general increase in the cost of cars worldwide, as well as a lack of innovation from the shared knowledge of the current globalised automotive market. For example, we benefit from shared development cost from the Volkswagen’s group MQB platform, which is used in the Volkswagen Golf, Audi A3, Skoda Octavia, and many other vehicles all over the world. If each country had to develop its car platform, cars would be significantly more expensive.

One bright area for car enthusiasts is that Trump has had a very strong pro-drilling and pro-oil stance. He has been open to relaxing environmental regulations if it means that additional oil can be extracted from the US. This is in stark contrast to the Obama administration that has actively pushed for electric cars. The change in administration will likely see a change in automotive policy and subsidies for the electric car market. While it is unlikely that electric cars will go away, the recent increase in sales of pickups, SUVs, and large crossovers compared to cars will likely continue shortly. For petrol lovers, this will ensure performance vehicles will continue to be developed.

If there is one thing that is certain, it is that Trump is uncertain about many of his policies. He has backtracked on many of his past statements, making complete reversals of previous. For example, after stating he would revoke Obamacare, Trump has now said that he would embrace it with some revisions. One thing is sure: everyone will be watching anxiously when Trump takes office on January 20th, 2017.

About the Author - Henry Leung

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