The Implications of Long-Term U.S.-China Border Security Tilts for the Auto Industry and the American Autonomous Industry

The tariffs on Mexico and Canada have been put on hold for at least a month after last minute negotiations led to both countries agreeing to boost border security.

This border-hopping supply network was supported by trade agreements such as NAFTA, which Trump reviled, and its replacement USMCA, which Trump signed. And the Detroit 3 — the U.S.-based automakers, who have significant operations in the U.S.’s closest neighbors — would be particularly vulnerable to cost increases.

When tariffs are expected to linger, automakers might be willing to make significant investments in order to avoid them, like relocating where a vehicle is made, or building new supplier relationships. But if a tariff is only going to be in place briefly (or never move beyond a threat), that outlay doesn’t make sense.

All parties have been urged to reach a swift resolution in order to provide clarity and stability to the US auto industry. The Alliance for Automotive Innovation, the group representing U.S. auto manufacturing, noted that “seamless” trade in North America supports a $300 billion auto industry.

MEMA, a trade group representing companies that make auto parts and components, wrote in a memo on January 31 that the tariffs “would have severe consequences” for suppliers, workers and consumers alike.

But he also dismissed concerns about the economic impacts if tariffs were imposed, telling reporters on Monday that the U.S. is not reliant on Canada. “We don’t need them to make our cars,” he said.

The tariffs are not intended to be permanent, and this is a significant challenge for the auto industry and the surrounding industries that deal with them. That’s in contrast to some long-term tariffs on China, which are meant to help U.S. companies compete with subsidized Chinese rivals, or to the prospect of widespread, across-the-board tariffs meant to raise revenue for the federal government.

China is a major source of the precursor chemicals to make fentanyl, and Beijing says it has gone out of its way to help curb the flow of the synthetic opioid into America. After Trump made his tariffs public, China warned that they could hurt future relations and that they would go to the WTO to fight them.

He said the underlying political and economic grievances between China and the U.S. run much deeper than those between the US and its neighbours.

Julian Evans-Pritchard, head of China economics at the research firm Capital Economics, said in a note the retaliatory measures were “fairly modest.” He estimated that the targeted goods represent about a twelfth of China’s total imports from the U.S.

China’s commerce ministry also put two U.S. firms – PVH Group and Illumina, Inc. – on its “unreliable entity” list, saying they violated market principles and adopted discriminatory measures against Chinese companies. PVH is the parent company of brands including Tommy Hilfiger and Calvin Klein.

The China’s market regulator plans an anti-competition investigation into internet service providers. And the commerce ministry and customs administration jointly announced fresh export controls on a handful of rare metals, including tungsten, indium and molybdenum. Announcements about the Google investigation and export controls did not explicitly mention the U.S. tariffs.

Those include 15% tariffs on American coal and liquefied natural gas and 10% tariffs on crude oil, farm equipment and certain other vehicles. The Chinese counter-tariffs are slated to take effect on Feb. 10.

In a statement, the Chinese finance ministry said the U.S. tariffs “severely violate World Trade Organization (WTO) rules, and not only fail to address [America’s] own problems but also disrupt normal economic and trade cooperation between China and the United States.”