Trump's Policies Have Unintended Consequences On American Industry

Trump’s Policies Have Unintended Consequences On American Industry

Trump’s policies have unintended consequences on American industry, specifically, in the automobile, natural gas, oil, and aluminum industries.

Ever since Donald Trump began campaigning for the presidency back in 2016, one of the critical arguments he made was to bring back jobs on to American soil, through closing the trade deficit with countries like China and Mexico.

Last year in Detroit, Mr. Trump said the attack on American car manufacturers was over. According to the New York Times, the president stated he would be rolling back regulations and standards for vehicle pollution created by the Obama administration (1).

Perhaps one of the biggest political issues put forth by the president is to boost the economy by relaxing regulation so businesses can flourish.

For instance, Trump has voiced his intention, on several occasions, to change the North American Free Trade Agreement, as well as foster the success of the oil and gas industry (1).

According to White House spokespersons, the tariffs on metal imports from foreign nations have already had significant effects on aluminum and steel industries, sectors mostly found in the Rust Belt – the region of the United States mostly comprising the states around the Great Lakes as well as in the Midwest (1).

Even though many in the corporate sector have lamented Trump’s policies, some say the very policies he has created, including the retaliatory tariffs imposed by the European Union and other trading partners, are doing a lot of damage.

In other words, Trump’s decisions have created a lot of unintended consequences, where one industry benefits from the policies, but another suffers because of it.

However, despite the trade war and the media hysteria surrounding it, investors are still pouring money in stocks.

The Effect Of Trump’s Policies On Some Farming And Agriculture

One soybean farmer, Kevin Scott, who spoke with the New York Times said he would like to tell Trump that he’s “messing up” their market (1). Kevin is a South Dakota soybean farmer, and also a key executive of the American Soybean Association (1).

According to Mr. Scott, the idea of renegotiating NAFTA stresses them out, because they don’t know just precisely how Trump intends to change the agreement (1).

And China’s declaration to implement tariffs on American soybeans has already affected the price of the commodity (1).

Many of the retaliatory tariffs implemented by American trading partners have been in response to Trump’s own tariffs, including in Canada, who just created tariffs (1).

However, Trump previously stated that the tariffs on Canada were in response to the 270% tariffs on American dairy products.

Canada subsidizes the dairy industry, which is the reason why the Canadian government has chosen to keep American dairy out of Canada (2).

Ironically, Trudeau and others have accused Mr. Trump of being a “protectionist,” while the Canadian government is doing precisely that with their dairy industry.

According to the Huffington Post, Canadian dairy farmers get 50% of their income from government subsidies, so Canada doesn’t want inexpensive American dairy destroying their business (2).

Kevin Scott, the soybean farmer, said that, while he voted for Donald Trump and approves of all of the environmental deregulations, if they lose Mexican and Chinese customers, it won’t be good, and it will be hard to gain back their business.

China and Mexico are both major buyers of American soybeans.

Richard Newell, who is the president of Resources For The Future, an organization in Washington, claimed Mr. Trump’s decisions clearly don’t appreciate the sophistication of global commerce (1).

He compared it to a “whack-a-mole policy (1).”

Additionally, the lack of clarity and the unpredictability of how Trump will behave has inadvertently fostered an environment of uncertainty, so companies don’t know how to go about planning for the years ahead.

A professor at Dartmouth College for international commerce, Matthew Slaughter, said the Trump administration’s lack of clarity has “wreaked havoc” because there is no certainty (1).

Trump Policies And The Automobile Industry

One of the unintended consequences of the rollback of environmental regulations is that individual American states might come up with their own environmental regulations.

Last week, General Motors stated that Trump’s tariffs might backfire, and would kill many American jobs. A spokesperson said the policies may result in a “smaller” General Motors (1).

Additionally, the automakers might be subjected to litigation, leading to more regulations by state governments.

Another worry is the continuing trade war and the implementation of foreign tariffs, resulting in higher prices for all automobiles.

When Mary Barra, the CEO of GM, spoke with Donald Trump, she stated she would be pleased if the environmental regulations stayed in place (1).

She suggested to Trump to begin rewarding them with financial credits as well as other incentives for companies that create fuel-efficient technology (1).

Moreover, the state of California might engage in a legal battle with the federal government, as they’re adamant about continuing to use the Obama-era regulations.

A few other states have claimed that they’ll follow California’s lead to battle the federal government.

In other words, if Trump’s government is to decrease fuel-efficiency and other environmental standards, the automotive industry will have to create a more expensive infrastructure to meet regulations set by different states.

And in the next few weeks, the EPA, as well as the Transportation Department, are joining together to roll back some of the regulations on vehicle exhaust emissions created by the Obama administration (1).

Ever since Trump got elected, car-makers in Detroit have stated the Obama fuel efficiency standards, of achieving 50 miles per gallon, were too hard on the manufacturers (1).

According to The Times, reducing the standard back down to 35-40 miles per gallon, will result in retaliation from individual states (1).

States that want their own emission standards will create their own, and automakers will have to deal with each individual state in a court of law (1).

California, for example, has a special stipulation under the Clean Air Act, whereby they can impose their own standards regarding air pollution on all automobiles, but specifically, trucks and cars (1).

And the governor of California, Jerry Brown, said he will battle the federal government in court.

The result of which is that automakers will have two sets of emission standards to meet, something they want to avoid at all cost.

Gloria Bergquist, a spokesperson for the Alliance of Automobile Manufacturers, explained that their customers don’t want to pay the costs of having to meet two different sets of regulations.

She added that “tariff”s are not the correct approach when it comes to “leveling the playing field.”

The result of the tariffs is often retaliatory tariffs from their trading partners, as well as raised prices for car buyers.

The Times claims that representatives and executives working for General Motors, Ford, and Fiat Chrysler, have had a plethora of different meetings with both the EPA and the White House.

They’ve been trying to get him to avoid rolling back the environmental regulations, as well as hopefully sitting down with California to reach some kind of an agreement.

Robert N. Stavins, a professor for Environmental Economics at the University of Harvard, claims the vehicle manufacturing industry has always wanted just one set of standards to meet across the country.

The reasoning for this is that manufacturers will only need one framework for building their products, rather than two. If there are two sets of standards to meet, the industry has to have double the amount of infrastructure.

Thomas J. Pyle, one of Trump’s aides and advisers, and also the president of the Insitute for Energy Research – a company promoting fossil fuels and that also denies climate change – said that many of the new policy decisions will help the economy overall, even if some industries take a bit of a hit in the process.

Oil, Natural Gas, Nuclear Power, Coal, Steel, and Aluminum

And if Trump plans to “revive” the coal industry, that would cut into the market share of oil and gas companies. And tariffs on American steel make the production of their equipment more expensive (1).

Aluminum manufacturers are concerned that the relaxing of fuel-efficiency regulation will drop the demand for aluminum, considering it is a light-weight car part, helpful for meeting such environmental standards (1).

However, Raj Shah, a spokesperson for the White House, explained that, while some businesses might be hurt by their policies, many of them benefit from the tax cuts and the rescinding of regulations (1).

Shah explained that the president is interested in supporting the American people; that is his genuine concern.

And Trump’s policies definitely have a lot of supporters, including Jeff Ferry, a research director for the Coalition for a Prosperous America. According to Ferry, the steel, aluminum, and auto tariffs may create employment for people in steel production (1).

His group, the Coalition for a Prosperous America, is an organization dedicated to closing the trade deficit. Ferry said the “electorate” doesn’t believe in the ideas created by economists now about free trade benefitting everyone (1).

Back in March, Trump’s government announced tariffs on steel as well as on aluminum, and while the steel industry has praised this move, the aluminum industry hasn’t.

In the past, Trump has stated his desire to protect metal producers in the Rust Belt, businesses devastated by the low-priced imports that come from China.

Scott Paul, the president of the Alliance for American Manufacturing, claimed the tariffs on steel will contribute to the revival of the industry (1).

Scott said some steel mills have begun production again. However, not everyone in the industry agrees with the policies. The president of an aluminum maker, Marco Palmieri, stated they are “disappointed” by the tariffs (1).

Palmieri stated the action wouldn’t deal with the overcapacity of Chinese aluminum – one of their biggest trade concerns – and instead, the tariffs will have the unintended consequence of raising the cost of the product to their customers (1).

Trump imposed a 25% steel tariff on China, Turkey, Brazil, and Russia, as well as a 10% tariff on aluminum (1). However, the aluminum makers in America are helped by the tariffs, but there are only a few smelters in the country (1).

According to the Aluminum Association, around 97% of the aluminum jobs are “downstream” businesses, meaning that these companies buy the aluminum from countries like China and then shape it into the necessary parts including for the auto industry and other companies (1).

During the Obama-era, the environmental regulations created a demand for light-weight metals for manufacturing fuel-efficient cars, rather than a heavy material, such as steel.

The association claims the decrease in fuel standards will hurt aluminum businesses (1).

The coal industry is another area where the unintended consequences of trying to revive these industries will be dire. In the United States at the moment, natural gas is a thriving industry, and the plan to help coal will hurt oil and natural gas creators (1).

The president has asked his Energy Secretary, Rick Perry, to begin re-opening nuclear power and coal plants across the country, businesses that aren’t performing well financially, to begin with (1).

One of his ideas is to force grid operators to purchase power from nuclear power and coal power plants, rather than going to natural gas and oil, which are much cheaper and efficient.

By supporting the coal industry, natural gas and oil companies are hurt in the process. Dan Eberhart, the owner of an oilfield services company in Phoenix, said Trump is “penalizing” natural gas, also through raising the prices of aluminum and steel, which raises the cost for drilling materials like rigs and pipes (1).

Nevertheless, Trump’s policies, presumably like many other administrations, are a mixed bag, with some benefits and some detriments.


(1) New York Times 

(2) The Huffington Post