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Nearly 20 Percent of Michigan’s economy is directly or indirectly related to autos.

Michigan rates to be the First Victim of Trump’s Trade War

Nearly 20% of the economy is tied to the auto industry, which has become increasingly dependent on parts and vehicles from Canada, Mexico and China—imports Trump hit with steep tariffs in recent weeks. This trade has grown so large that Michigan ranks fifth in the nation by the size of its imports and exports, even though its total economy ranks 14th.

Detroit’s automotive executives have shifted into battle mode. They are stockpiling imported components, wrestling with suppliers over price increases and setting up war rooms to figure out how to cut costs.

One auto executive early last week darkly predicted “Chernobyl” if tariffs broadly hit imported parts, which they’re scheduled to do next month.

Mary Buchzeiger, CEO of Lucerne International, another local auto supplier, is also talking with customers about her need to raise prices because of the new China tariffs. About 80% of the automotive hinges, brackets and other components Lucerne sells are made in China.

“There is no way we can absorb these tariffs. I don’t have 20% margin to give,” said Buchzeiger, who owns the company, which employs 25 people.

Some forecasts for the industry are dire. Anderson Economic Group, a Michigan consulting firm, estimates the tariffs will add $2,500 to $12,000 to the price of many new cars, and up to $20,000 for luxury imports. That will push new vehicles further beyond the reach of consumers already struggling with average prices of roughly $48,000.

“This is going to have a dramatic negative effect on car sales in the United States…and there will be production shutdowns,” said Patrick Anderson, the firm’s CEO. “The epicenter for job losses due to these tariffs is somewhere between Detroit, Michigan, and Windsor, Canada.”

Gabriel Ehrlich, a University of Michigan economist, forecasts the new steel and aluminum tariffs alone will cost Michigan 600 auto manufacturing jobs by the end of next year, and an additional 1,700 jobs in industries that serve auto workers. The auto tariffs will have an even bigger impact, he said.

Tariffs also pose a threat to Michigan’s agricultural sector, which ranks among the top in the U.S. in the production of tart cherries, asparagus, and squash, and the state’s nascent tech industry, centered on the production of drones and other battery-powered vehicles.

GM, which builds many of its pickup trucks in Mexico, last month said it could offset up to 50% of tariff costs through short-term steps such as accelerating imports ahead of tariffs. If the company is ultimately forced to move more production from Mexico to the U.S., its labor costs will rise. UAW workers building GMC Sierras and Chevrolet Silverados in Fort Wayne, Ind., are paid some 10 times more an hour than workers building those same trucks at GM’s factory in Silao, Mexico, according to the union.

Jim Seavitt, a longtime car dealer in the shadow of Ford’s headquarters in Dearborn, Mich., said he’s relieved that Ford’s U.S.-heavy manufacturing base means that only a few of the company’s complete vehicles are subject to tariffs. But he worries about Trump’s plan to tariff parts next month, such as the engines that Ford produces in Canada for trucks built in the U.S.

“If it’s a V-8 engine…that’s gonna add 6% to 7% to the truck,” he said.

Hope Against Hope

The Journal also interviewed some people who took the long and wrong view.

For example, Kelly Nering, a finance professional whose father worked at Ford, said  “In the long term we are protecting our interests, and we’re going to increase jobs in America.”

Sorry, that won’t happen.

The price of cars and trucks will go up by $8,000 or so. That impacts everyone buying or leasing a car. As of 2022 there were 283 million vehicles registered in the US.

The UAW has about 400,000 members. If UAW jobs increased by 10 percent then there would be 40,000 winners and tens of millions of losers.

And it will take years, if ever, for this production to return. Trump acts like he can snap his fingers and make things happen.

He may as well command the tides.

And we have already tested this before.

Downstream Pain

February 4, 2020: Trump’s Steel Tariffs Start Cascade of Downstream Pain

Tweet Thread by Chad P. Bown.

1. On Friday night, Trump admitted that US companies whose costs he has raised – by imposing tariffs on the metals they need – are no longer competitive with foreign firms. Because of his policies, they too must now be shielded from trade…
2. Trump announced he was expanding the product coverage of his national security tariffs on STEEL and ALUMINUM to include “derivative” goods that use steel and aluminum as an input – eg, steel nails or aluminum bumpers.
3. Imports of those “derivative” products have increased, in part because US companies have had their COSTS go up because of Trump’s tariffs on steel and aluminum. In Econ 101 terms, the cost increase shifts the US supply curve (DS) to the LEFT. That makes imports INCREASE.
4. Economists call this “cascading protection.” Trump’s tariffs on inputs lead to higher costs for US companies making the downstream products, and this results in a clamoring for ADDITIONAL trade protection for those products. This was all completely predictable.

Tariffs Kill High-Paying American Jobs

April 20, 2018: Fed Study: “Tariffs Kill High-Paying American Manufacturing Jobs and Businesses”

On occasion, Fed economists get things correct even if the voting members get things backward.

For example, New York Fed economists ask and answer the question: Will New Steel Tariffs Protect U.S. Jobs?

Firms that are dependent on steel and aluminum inputs—both importers and non-importers—will face higher prices. Downstream domestic producers will have to increase their prices or reduce markups, which makes them uncompetitive relative to competing imports. Similarly, U.S. exporters that need steel or steel-related inputs will face higher input costs and will have to either increase export prices or reduce their profit margins. These effects could lead to lower employment in these steel-intensive industries and possibly plant shut downs. Researchers estimate that the number of jobs in steel-intensive industries, which they define as industries with steel inputs of at least 5 percent of total, is around 2 million—for example, manufacturers of auto parts, motorcycles, and household appliances.

It is in steel-related industries where jobs are likely to be at risk. To get a sense of the magnitude of the employment effects, we can turn to a similar episode in 2002 when President Bush introduced steel tariffs of up to 30 percent, although under different legislation. Studies of these tariffs found evidence of higher steel prices and job losses of 200,000 across the United States. This number is higher than the total number of workers employed by U.S. steel producers (187,500) at the time.

Repeat Play in Process

On February 10, 2025 I commented Trump to Impose 25 Percent Tariffs on Steel and Aluminum, Expect Higher Prices

All US consumers of steel and aluminum will pay higher prices, especially the automakers.

The reinstitution of aluminum and steel tariffs across the board is in direct violation of Trump’s loudly bragged USMCA “Best Trade Deal in History”.

Trump has proven ability to repeatedly make the same mistakes, needlessly taunt allies, and violate his own treaties.

No good, and lots of bad will come from this, just as happened before.

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