If The UK Trade Deal Is Any Indicator, American Car Companies Are Boned

I have a strong and inexplicable love for British literature and music that is in no way congruous with my upbringing along the wind-swept beaches of the Gulf Coast or the tall pines of East Texas. It started in high school, and either mutton is reasonably substitutable for brisket or, maybe, there was a growing familiarity with the concept of an empire in decline.

This is all to say that I do not wish any British company or person ill, and that free trade and a “special relationship” between the two countries is a good thing. It’s also a little insane that, if you’re an automaker who followed the rules of trade first established by President Clinton under NAFTA and renegotiated under President Trump with the USMCA, your cars are going to be levied more heavily than British ones.

It was suggested yesterday that The Suck was not an apt metaphor for these current times, and that The Churn, from sci-fi duo James S.A. Corey’s excellent The Expanse universe of books and TV shows, was better.

Here’s how it’s described in the novella of the same name:

The Churn is some event that changes the rule for the way you live without giving you a choice to participate. Old norms are uplifted, old habits are forcibly broken, and your current way of life no longer can sustain itself.

Almost too on the nose, right? You don’t have to speak beltalowda, or even know what beltalowda is, to get it.

It’s going to be one of those Morning Dumps where I quote a lot of literature, and I suppose it would be more apt to start with a quote from a British author, but this felt right to me. I don’t mean to be a downer, and I hope I’m wrong, but this whole Trade War doesn’t seem to be going that well to me, at least in the automotive world.

There’s no overriding logic I can point to. There’s a deal with the UK (or, at least, a deal to make a deal) to start, but no agreement yet with the EU, and the EU is ready to play hardball. There’s been a long trucking recession that looked like it was ending. I don’t think it’s ending. I think we’re heading towards a “Trucker’s Recession” if something doesn’t change soon.

If there’s some ray of hope, it’s that China seems willing to come to the table and talk to the United States. Do you know who was on the undercard for The Fight of the Century between Muhammad Ali and Joe Frazier? Of course you don’t it doesn’t matter. That’s how I feel about a lot of these other trade deals.

(If you were curious, though, the best of those battles was apparently between the American Rahman Ali and Britain’s Danny McAlinden. The Brit won, if you believe in signs.)

It’ll Soon Be Easier For British Cars With Few Or No American Parts To Enter The Country Than For Mostly American Cars From Canada Or Mexico

Alright, here’s a quote from my favorite book by one of my favorite authors — a quote I think fits the moment:

It seems to me there was a will to war, a death wish, everywhere. Even good men thought their private honour would be satisfied by war. They could assert their manhood by killing and being killed. They would accept hardships in recompense for having been selfish and lazy. – Evelyn Waugh, Sword Of Honour

For now, it’s just a Trade War. Hopefully, it’ll just stay a trade war. But there’s a sense of inevitability with all of this that I can’t quite shake. It doesn’t feel like it needed to happen to me, which isn’t a universally shared sentiment.

There’s a sense that the President wanted to right a bunch of perceived wrongs by threatening massive trade barriers, or at least that’s the nicest gloss I can put on it. I’m not even one of those people who didn’t see a few shortcomings in America’s trade policy, and, surely, the last few years have taught us the importance of having some redundant local manufacturing capability.

Another way to think of “selfish and lazy” as mentioned above is: peaceful. A non-specific peace has been maintained for a decent amount of time, and slowly, the quality of living in a lot of places has been raised alongside it. The combination of the pandemic and the Russian invasion of Ukraine seems to have broken this peace, and the current occupants of the White House, in the name of prosperity, seem destined to inadvertently reverse the quality of life for many people.

What am I all worked up about? Here are the administration’s highlights of the impending deal between the United States and Northern Ireland/The United Kingdom, but let’s focus on this:

(i) The United States will create a quota of 100,000 vehicles for UK automotive imports at a 10 percent tariff rate, and an accompanying arrangement for attendant auto parts for such autos.

Trade negotiations are never truly fair to everyone, as the give-and-take inevitably requires some industries to be favored over others in the various countries involved in those negotiations. What is the United States getting out of this? It’s not clear, though farmers and ranchers seem to be in considerably better shape. Automakers, though, are going to lose out, according to the American Automotive Policy Council, which represents Detroit’s three automakers:

“The U.S. automotive industry is highly integrated with Canada and Mexico; the same is not true for the U.S. and UK. We are disappointed that the administration prioritized the UK ahead of our North American partners. Under this deal, it will now be cheaper to import a UK vehicle with very little U.S. content than a USMCA compliant vehicle from Mexico or Canada that is half American parts. This hurts American automakers, suppliers, and auto workers. We hope this preferential access for UK vehicles over North American ones does not set a precedent for future negotiations with Asian and European competitors,” said Governor Matt Blunt, president of the American Automotive Policy Council.

The United Kingdom sent about 100,000 cars to the United States last year, meaning that the country’s current level of automotive exports can be maintained without the huge impact experienced by other automakers. In particular, the net duties on a Land Rover Range Rover with 5% parts from Canada or the United States will be lower than, say, a Canadian-built Chrysler Pacifica with 88% of its parts content coming from the United States, Mexico, and Canada.

That is madness. President Trump might come around to renegotiate the USMCA trade deal he himself insisted on in his first term, thus resolving these issues, but it hasn’t happened yet.

There’s a concern in all of this that President Trump, anxious to make deals, is going to get played. That he is the Washington Generals, and the rest of the world is the Harlem Globetrotters. Here’s how CNN describes the mood:

For Trump, an uncertain economy and a long-term plan to restore US manufacturing come with a messaging challenge: how to explain to Americans who elected him on a promise to lower prices that, in fact, it is higher prices they should prepare for in the immediate future.

[…]

“You know, somebody said, ‘Oh, the shelves, they’re going to be open,’” he said. “Well maybe the children will have two dolls instead of 30 dolls, and maybe the two dolls will cost a couple of bucks more than they would normally.”

For all the bluster of the President, deals like this don’t exactly seem like they’re coming from a position of strength. Maybe that’s just my impression, and maybe there’s some massive game theory at play here. The announcement of a “deal” was basically just an announcement that they’d announce one soon.

If you’re an American automaker and you’ve played by all the rules, you’re getting absolutely smoked for doing so right now. For you, The Churn is here.

The EU Is Going To Make Europe An Even Harder Place To Sell American Cars, Bourbon

The aspect of Jane Austen’s Emma that Clueless captures better than any other filmed version I’ve seen is just how much of a self-centred jerk she can be at the start of the book. Filmmakers have a hard time being as unflinching in their portrayals of Austen’s flawed heroines, but Cher is just about perfect. The next quote is, like much of the book, both sincere and deeply ironic:

“[A] very narrow income has a tendency to contract the mind, and sour the temper.”

Europe and, in particular, European automakers have been in a bad way lately. I’m not sure if their minds have contracted, but the tempers have definitely turned sour.

German automakers are likely to experience more disruptions due to these tariffs than automakers in any other country unless the EU can negotiate a better deal. Seeing what the UK was able to do, maybe there’s hope, but hope is the thing with feathers, and the EU wants to start with the talons instead:

From Bloomberg via The Detroit News:

The European Union is planning to hit €95 billion ($108 billion) of U.S. exports with additional tariffs if ongoing trade talks with President Donald Trump’s team fail to yield a satisfactory result.

The proposed retaliatory measures would especially target industrial goods including Boeing Co. aircraft, U.S.-made cars and bourbon, which was initially removed from a previous list. The new proposal will be the subject of consultations with member states and other stakeholders through June 10 and could change before it’s finalized.

More bourbon for people in American C-Suites, at least. Europe is a bad scene for Detroit automakers already, with GM ditching its European arm, Stellantis unsteadily balancing it with its American portfolio, and Ford trying to salvage its German production. This ain’t helping.

Again, everyone wants a deal, and Audi CEO Gernot Doellner thinks things might get a little better eventually, or at least that’s what he told a trade group earlier today:

“We expect to have clarity on this in the coming months and also regulations that will make what is currently on the horizon more bearable or manageable,” said Doellner.

Trucker’s Recession, Redux

“Events stream past us like these crowds and the face of each is seen only for a minute. What is urgent is not urgent forever but only ephemerally. All work and all love, the search for wealth and fame, the search for truth, like itself, are made up of moments which pass and become nothing. ” Iris Murdoch, Under the Net

The big talk in trucking circles over the last few years was of the “Great Freight Recession,” which trucking site Freight Waves described as “the most prolonged freight recession in history.” A combination of factors, including a low interest policy encouraging overcapacity, led to a huge imbalance between demand and capacity. The election of President Trump, at the time, was seen by a lot of businesses as a general good thing for business, including trucking:

Trump’s election could accelerate freight demand as policy changes could stimulate economic activity, increasing the need for freight services. This includes income and corporate tax cuts, bonus depreciation, pre-stocking for tariffs, investment in domestic manufacturing and the change in freight dynamics from containers to surface (trucking, rail and domestic warehousing).

Let’s check in on that.

The ongoing trade war between the United States and China is beginning to show significant impacts on the American economy, particularly in the transportation and logistics sectors. Industry experts are warning of substantial job losses and economic disruption as the effects of reduced trade volumes begin to materialize.

“We’re just at the start of the trade war,” said Craig Fuller, CEO of Firecrown Media and SONAR, in a new video on X. “We’ve been at this for a couple of weeks, but things are definitely starting to take an impact in the economy.”

If the past recession was a “Trucking Recession,” then this could be a “Trucker’s Recession” led by layoffs in logistics and distribution-related businesses. A new survey from Tech.co of transport and shipping professionals points to impacts starting to filter down to workers:

“Managing financial pressures” was among the most common responses given by the logistics firms that Tech.co polled, when asked about their top priority for this quarter. Over one in five (21%) firms picking this above every other issue, putting it second overall, ahead of every other issue except vehicle upkeep (23%).

What are the top ways that firms are dealing with their money issues? Among those who are most concerned with their financial well-being right now, the biggest steam valve they plan to open up is a reduction in operational costs, with 46% saying they intend to trim some costs related to operations in the very near future.

For firms like this, operational costs are often code for “people,” and it’s not just people who work at these companies who are impacted. With delays in truck purchases, anyone in truck manufacturing or related fields has a reason to be concerned.

This is just a small part of the total economy now, of course, but it’s an important one.

China And The United States Are Preparing To Talk

“I never knew a man who had better motives for all the trouble he caused.” Graham Greene, The Quiet American

The United States and China have both levied huge tariffs on one another, but at least the talking is starting to happen.

From Reuters today:

Since U.S. President Donald Trump imposed steep tariffs on China last month, Beijing has responded in kind. On state and social media, it posted images of Mao Zedong, lambasted “imperialists,” and sent a message: capitulation to bullies is dangerous, and it wouldn’t back down.

But behind closed doors, Chinese officials have grown increasingly alarmed about tariffs’ impact on the economy and the risk of isolation as China’s trading partners have started negotiating deals with Washington, according to three officials familiar with Beijing’s thinking.

These factors, along with outreach by the U.S. and an easing of Trump’s rhetoric, persuaded Beijing to send its economic tsar He Lifeng for meetings with U.S. counterparts in Switzerland this weekend, the officials told Reuters.

China is both a peer state rival and a trading partner, and it’s a bipartisan belief in the United States that the country has to be approached carefully. President Obama negotiated the Trans Pacific Partnership (TPP) specifically to strengthen this country’s ties to most Asian economies in order to protect against China’s growing influence.

President Trump walked away from the TPP and replaced it with some smaller deals, including with Korea, but nothing on any kind of similar scale. Will something be forthcoming now? I’ve talked about “China Shock” before, and how hollowing out a lot of American industrial capacity was probably going to always lead to a populist response of some kind. The question was always the form the destructor of global trade norms would take: Bernie Sanders or Donald Trump. We ended up with two disconnected terms from President Trump.

There’s a lot for America to gain in negotiations with China, including a return of some of that technology they “borrowed” as well as more open markets for our own goods. There’s also a lot of risk.

While negotiations with every country are important, it’s the promise of a deal with China that could fundamentally alter the trajectory we’re on, with a good deal possibly improving our economy before it all comes crashing down on our heads.

What I’m Listening To While Writing TMD

Here’s Yolanda Be Cool & DCUP with “We No Speak Americano,” which is an extra funny song to listen to right now for, uh, papal reasons if you speak Italian or Spanish.

The Big Question

Is there a British car that you lust after more than any other car? For me, it’s always going to be the Escort Cosworth RS.

Top Photo: Depositphotos.com