For the world’s manufacturers, Donald Trump’s return to the White House essentially means only one thing: tariff wars.
Trump has already threatened 60 per cent tariffs on China imports and blanket 10 or 20 per cent duties on all trading partners including the EU.
“If I’m going to be president of this country, I’m going to put a 100, 200, 2,000 per cent tariff” on cars from Mexico, he warned last month, describing tariffs “as the most beautiful word in the dictionary”.
The first Trump administration from 2016 used tariffs as a key tool to negotiate better deals from its trading partners. “I think we can expect some relatively early moves when it comes to tariffs,” Andy Leyland, managing director of battery supply chain consultancy SC Insights, said.
AUTOMOTIVE
Cars are certain to be the target of Trump’s tariffs with huge upheaval expected in supply chains and investment plans.
If Trump goes ahead with raising tariffs, companies will probably raise production in the US. In July, Tesla said it was increasing local production after its chief executive, Trump supporter Elon Musk, paused plans to build a gigafactory in Mexico.
Others who do not have enough capacity at their American plants, will try to absorb the additional tariffs or pass the costs to consumers by raising vehicle prices. Oxford Economics forecasts that the automotive sector will be the most affected within US manufacturing, with prices potentially rising 3.7 per cent if new tariffs are imposed.
The US uncertainty comes as carmakers are already wrestling with shrinking profits from the rising costs of developing EVs and the influx of cheaper and better offerings from Chinese competitors.
“The industry is under massive stress financially but the bigger pressure point will probably be the German brands because they export quite a bit,” said a former executive of a European car group.
High on Trump’s list of targets is Mexico, which he has said is “not going to sell one car into the United States”. Its southern neighbour is now the biggest trading partner for Washington with Mexican car exports to the US rising 13 per cent to 2.55mn last year.
Most of the world’s largest carmakers from Ford, Volkswagen to Toyota have a large manufacturing presence in Mexico.
Japan’s Honda said US tariffs on Mexico would impact an estimated 160,000 of its vehicle exports. Executive vice-president Shinji Aoyama added that the group “would have to consider moving production elsewhere” if tariffs were put in place.
The move would also hurt US carmakers especially General Motors and Stellantis since the trucks they make in Mexico sell in greater volumes, and cost more than Ford’s products, according to Barclays analyst Dan Levy.
Levy said it would be difficult to impose tariffs on Mexico-made goods without disrupting the US auto industry. “If part of the mandate [of Trump] is to avoid inflation, putting in tariffs doesn’t help on the inflationary side,” he added.
AEROSPACE
Any sizeable tariffs could impact the aerospace industry’s closely integrated supply chain which has still not recovered fully from the impact of the Covid pandemic. Tariffs on new aircraft could also mean higher costs for airlines and ultimately, higher ticket prices for passengers.
Trade wars could hurt Boeing more than its arch-rival Airbus given the US group’s limited production overseas, according to analysts. Exports of Boeing planes could become subject to retaliatory tariffs, dampening demand from airline customers.
Boeing has “very limited added value activities outside the US, so trade wars would have a big impact on its demand”, said Nick Cunningham, analyst at Agency Partners.
Nevertheless, given that both Boeing and Airbus were struggling to fulfil existing orders, “what practical impact tariffs would have is moot,” Cunningham added. “Airlines could perhaps cancel but would they be able to replace the orders? So it’s hard to see how anyone wins on this one.”
One senior US airline executive also played down the impact of tariffs on new airline orders. They said a plane ordered now would not be delivered and paid for until the early 2030s, and such long-term decisions cannot therefore be influenced by political cycles.
Whatever happens, Robert Stallard, analyst at Vertical Research Partners, said in a note that tariffs on new aircraft “are very likely to mean higher airline ticket prices”.
Airbus builds A320neo and A220 aircraft at its site in Mobile, Alabama, but any jets or aircraft components imported into the US could be affected.
Guillaume Faury, Airbus chief executive, last week said the costs of any new tariffs would be passed on to customers, similar to what happened in 2020 when Trump’s previous administration levied duties as part of a long-running dispute with Europe over aircraft subsidies.
STEEL AND CHEMICALS
The Trump presidency will inject more uncertainty into the steel industry at a time when trade tensions have risen globally over the flood of cheap steel exports from China.
The world’s largest producer of steel is expected to export more than 100mn tonnes of the metal this year, more than any year since 2016.
“Exports could see front-loading ahead of Trump imposing new tariffs next year,” said analysts at ANZ bank, leading to a renewed wave of exports from China.
Countries around the world have increased tariffs against Chinese steel, as they have sought to protect their domestic industries from surging exports from the world’s largest producer.
In Europe, steelmakers have complained that despite existing tariffs, prices for some Chinese steel products are still competitive with those produced in the region. The industry is also suffering the knock-on effects of higher imports from elsewhere as a result of global overcapacity.
ArcelorMittal, the world’s second largest steelmaker, on Thursday called for stronger trade measures to address the exports from China.
“The increased level of imports into Europe is a concern and stronger trade measures are urgently required to address this,” said Aditya Mittal, chief executive of ArcelorMittal.
Trump, during his previous presidency, had imposed 25 per cent tariffs on imports of steel and 10 per cent on aluminium from most countries, including the EU, in 2018. Under Biden, the US and the EU agreed to suspend tariffs in 2021, with the US introducing a quota system instead.
Although this agreement was extended until 2025, the bloc’s steelmakers could be affected if Trump chooses a wide ranging tariff increase on steel imports.
Mittal on Thursday told employees in an internal letter, seen by the Financial Times, that the company was “actively making the case for urgent trade measures to address the increase in unfair imports”.
Trump, he said, had been “unequivocal in his support of domestic steel manufacturing, and this was also very clear during his first presidency”.
“I hope that the new commission in Europe will be equally committed,” Mittal added.
Chemical products in the EU are also likely to be one of the most affected if US tariffs are imposed, according to Morningstar DBRS.
Within the chemical industry, companies often produce their goods close to customers to reduce transport costs of sometimes dangerous or unstable materials. For example, Germany’s BASF, the world’s largest chemical company, produces a “majority” of its US sales in the US.
Nevertheless, the US was the top export destination for the bloc’s sector, the world’s leading chemicals exporter, as well as being one of the largest buyers from the Chinese industry.
In an open letter to Trump, the Society of Chemical Manufacturers & Affiliates in the US welcomed his plans to boost domestic production. “The administration’s commitment to repatriating essential manufacturing, especially for chemicals crucial to national security, will be vital to strengthening the US industrial base,” it said.
Reporting by Kana Inagaki, Sylvia Pfeifer and Philip Georgiadis in London, Patricia Nilsson in Frankfurt, Claire Bushy in Chicago, Harry Dempsey in Tokyo, Laura Pitel in Berlin