Just a couple of weeks before Donald Trump is inaugurated as President of the United States, he has taken to Twitter to strongly voice his opinions on the automotive industry.
He is already confirming, through social media, his thoughts on NAFTA and the practice of the automotive industry to build cars cheaply outside of the US before importing them into the country, tax-free. So far, Trump has used his Twitter account to launch attacks on General Motors and Toyota; slamming them for producing cars in Mexico.
The North American Free Trade Agreement (NAFTA) ensures that cars can move across the border tax-free, and this is something that Trump has pledged to fight once he gets into power. Trump blames NAFTA, amongst other factors, for causing the loss of US manufacturing jobs to cheaper labour.
The reactions from the automotive industry to Trump’s tweets have been quick and to-the-point. General Motors took to social media themselves to assure their audience that the majority of their cars are made in the US. More drastically, Ford has announced a decision to cancel a $1.6 billion investment in Mexico; instead choosing to invest an extra $700 million in their plant in Michigan. Fiat Chrysler Automobiles announced on Sunday that they are planning a $1 billion investment in two car plants in the US Midwest; circulating the announcement apparently as a response to Trump’s threatening tweets.
Trump also tweeted that Toyota will face heavy fines if their plan to build Toyota Corollas south of the US border went ahead. In response, Toyota’s President Akio Toyoda said that the company had no immediate plans to curb production in Mexico. Similarly, BMW has confirmed that they are “absolutely committed” to a new plant in Mexico for which they are spending $1 billion.
So are Trump’s bullying tactics working? On the surface, it would certainly seem so. However, if he thinks that his tweets will be enough to dismantle cheap car production in Mexico, he is mistaken. A combination of cheap labour, solid manufacturing supply chains, a cheap peso and numerous free trade agreements mean that Mexico is still a very attractive destination for car manufacturers.
However, investors will want to keep an eye on Trump’s stance on the automotive industry in the coming months. His economic nationalism means that many car companies will soon feel the effects of his policies: for better or for worse.
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