By Setsuo Otsuka, Nikkei senior staff writer
NEW YORK — Once in office, U.S. President-elect Donald Trump must face the real-world consequences of the protectionism exemplified by his recent tweet-slap at Toyota Motor.
Trump won election with a promise of bringing jobs back to America. Ford Motor and air conditioner maker Carrier, both targets of his ire, have scrapped plans to move certain manufacturing jobs to Mexico. And now, the real estate tycoon has fired a warning shot at Toyota.
Hard-liners on trade and commerce populate the administration set to take the reins Jan. 20. One American economist is optimistic, characterizing higher tariffs and other threats as mere bargaining chips. Many in the future cabinet understand how business works, the thinking goes. But the new administration could still slap retaliatory measures on recalcitrant corporations or countries.
Can Trump really make good on his threats? While the president does have the power to raise duties on certain imports, doing so would fly in the face of rules set by the World Trade Organization and the North American Free Trade Agreement.
NAFTA calls for tariff-free imports of cars into the U.S. from Mexico and Canada. Any changes would require negotiations by member countries. If Trump wants to impose a 35% border tax on Mexican imports, he would need national security reasons or an extremely lopsided trade balance, among other requirements under applicable rules.
Only entire countries are subject to tariffs under the WTO, meaning that Toyota cannot be singled out for punishment. Should the administration press ahead anyway, the affected country could very likely file a case claiming violation of WTO rules.
Corporations might meanwhile take a cautious approach on investment in not only Mexico, but also the U.S., during Trump’s time in office.
Careful what you wish for
Candidate Trump threatened to withdraw from the WTO and NAFTA. He has since adjusted his trajectory but might renew the threats if tariffs are forestalled under the status quo. He has mentioned a 45% duty on Chinese goods, and he might direct his browbeating at Japan and Europe if they are viewed as job stealers. Going this route would likely shake global free trade to its core.
The potential blowback cannot be ignored. Higher tariffs will likely translate to higher prices on imported goods. If Mexican, Chinese and Japanese products were so affected, the least-well-off Americans would be greatly impacted, the National Foundation for American Policy has found. The tariff burden would equal nearly 20% of after-tax income of the lowest-income families.
And bringing back manufacturing jobs would mean high labor costs exerting upward pressure on retail prices. Ford moving production of the Fusion from Mexico to Michigan would entail a $1,200-per-vehicle premium, according to the U.S.-based Center for Automotive Research. This might not sit well with the very white working class that put Trump in office.