As Trump Surges in Polls, Does His Proposed Tax on Ford Make Sense?
In the past few months I’ve brought to you several different stories where Donald Trump, candidate for President, would say that if he were in charge, he’d hit Ford with an exclusive import tax to see vehicles here made outside the country. Since he was targeting a single company, it didn’t make much sense. He’d have to pass legislation that would penalize any company doing so, and not just single out Ford. Since then, his tone has changed a bit.
He’s surging in the polls and just came off a solid victory in New Hampshire, and is again addressing the issue of companies moving their production jobs to Mexico. Carrier, the air conditioning manufacturer in Indianapolis, just decided that they’ll be moving their production to Mexico to cut costs. It’s clear Trump’s words are resonating with people, but does his plan for automotive taxation make practical sense?
During the last round of union negotiations, all the major automative manufacturers wanted to compromise with the unions, offering wage increases and meeting their demands. To do so, they opted to move their low-margin vehicle production to Mexico, while shifting their higher margin stuff here. It’s a lot easier to absorb higher labor costs on higher-margin vehicles than on lower-margin vehicles.
Now Trump is stating that he’ll charge a tax on vehicles that come across the Mexican border to be sold here. While he hasn’t said specifically how much that would be, per a recent interview with Brietbart News, he has thrown around the 35% number in the past.
If that number were to hold true, automakers won’t be able to eat that cost, and it’ll be passed on to the consumer. That means that $20,000 Focus you want to buy will actually be $27,000. Clearly, that would impact Ford financially because they wouldn’t be able to sell the Focus here competitively.
However, it’s also logical to assume that if Ford could build the Focus here profitably, while keeping the unions happy, they would be doing so. Selling a vehicle at a loss would not make shareholders happy, and the company wouldn’t be able to sell the Focus here anyway.
Unless there is a secret stockpile of money sitting somewhere, it’s my belief that Ford wouldn’t be able to produce their cars here at a profit while paying the same wages and benefits that they currently pay. I don’t believe that Ford would stop selling cars in the United States, but if legislation like what Mr. Trump is proposing could force them into a situation where they attempt to break their union contracts. I’d imagine that that would also make people quite unhappy.
It is a tough situation to be in, because I agree with Trump; I want to see more production jobs here in the United States. But the economics of that don’t yet add up. Hopefully he has the logistics of his plan in place by the time he gets into office, if he wins in November.
What do you think? Let us know over in the forums!
via [Brietbart News]
cover photo via [Jacob Stumph]