A lot of business leaders support President Donald Trump’s attempts to reform trade with China, to open markets there, to knock down barriers to American exports and, most of all, force Chinese compliance with international law for IP protection. But if you wanted to see the short-term impact of Trump’s efforts to remake the rules of global trade, January’s Detroit auto show was a pretty good place to go.
It was a somber affair, especially when you consider that the U.S. auto industry has been enjoying the softest of soft landings after several years of record sales. Dependable newsmakers Sergio Marchionne, the deceased CEO of Fiat Chrysler, and Nissan-Renault chief Carlos Ghosn, languishing in a Tokyo jail, were gone. Meanwhile, reminders of how electric cars and autonomous driving are turning the industry upside down were all over the hall.
But in the cavernous, hushed Cobo Center, the real cloud following CEOs was the president’s policies on trade—and a bigger sense of foreboding than they’d felt since the global financial collapse in 2008 presaged a major crash in auto sales.
“The one thing our industry craves is clarity because of our lead times,” William Ford Jr., executive chairman of Ford Motor, said in an on-stage interview. “Right now there’s very little clarity… It makes it hard for businesses to operate. We make decisions, and they’re billion-dollar-plus decisions, and we’re doing it right now kind of flying blind. That’s not the way to do it.”
German auto executives at the show worried about President Trump’s threat of a 25 percent tax on European luxury-car imports; U.S. tariffs on European steel and aluminum imports were pinching domestic CEOs; many were concerned about how a deceleration of the Chinese economy would devalue huge investments in China by Western auto companies; and the trade mess was freezing most CEOs in their tracks.
Guangzhou Automobile Group of China (GAC) felt the biggest punch to the gut. After several years of showing its wares in the lobby—alongside other marginal players, including radio stations, not-for-profit groups and supplier organizations—GAC finally moved into the big time of the show floor inside Cobo.
GAC staged a huge, glitzy exhibit around a concept, the Entranze EV utility vehicle, aimed at American consumers. But ironically, because of China’s trade war with Trump, GAC’s prospects of importing any production car to America now are at their lowest ebb ever.
“Tariffs won’t bring more manufacturing and jobs,” said Dan Sandberg, North America CEO for Italian brake-maker Brembo. “We can’t find enough people to work now. Where would we get more people anyway?”
The auto industry, of course, is far from alone. CEOs across every sector have spent the last two years trying to discern what to do in the face of Trump’s trade policy—whether they agree with his goals or not. Their impulse toward paralysis is reminiscent of when President Obama’s regulatory war on business prompted a capital strike by CEOs and produced chronic slow growth during his administration.
Some CEOs are just waiting things out. Others are moving tactically, passing along higher costs or seeking duty-free loopholes. Still other leaders are accelerating long-term decisions on production and business investment, hoping they haven’t bet the wrong way.
“Policymakers don’t really comprehend the fact that global supply chains have to be borderless, so CEOs are having to rethink their supply chains,” says Craig Giffi, leader of the U.S. consumer and industrial-products practice for consultants Deloitte. “They’ll have to make products based on where they sell them, but in some cases that becomes economically unfeasible. They need to hedge their bets on a supply chain that’s increasingly vulnerable to global politics.”
Nowhere is this more clear than in Wisconsin, a state that helped Trump win in 2016 but where his approach to trade is likely to make a repeat problematic in 2020. It’s a telling microcosm for business throughout the U.S. After two straight years of record sales and profits, for instance, Helen Johnson-Leipold, CEO of Racine, Wisconsin-based Johnson Outdoors, is scrambling for ways to mitigate the impact of tariffs on a product line that relies heavily on manufacturing in China. Cindy Brown, CEO of Chippewa Valley Bean, a kidney-bean producer in Menomonie, canceled two scheduled expansion projects. Apple-supplier Foxconn is rethinking its Wisconsin factory.
Husco International CEO Austin Ramirez is also rethinking recently announced plans for U.S. expansion, including at the Waukesha, Wisconsin, headquarters of the maker of components for auto and construction-equipment markets. That was because Husco gets about one-third of the components used in its North American plants from Chinese suppliers, and the higher tariffs on these components were costing an extra $1 million a month.
“Right now we have an incentive not to manufacture products in the U.S. that require Chinese-supplied content,” Ramirez said at a public forum in January. “I think there are much more targeted actions that the administration could take to punish China’s bad behavior while still protecting free trade, fair trade, and allowing U.S. manufacturers like Husco to build our business around the world.”
Of course, not everyone disagrees with the White House. President Trump “is the first one actually saying enough is enough,” says Tom Shorma, CEO of WCCO Belting, a maker of industrial fabrics in Wahpeton, North Dakota, that has been hit by tariff-related price increases on raw materials imported from China. “All his predecessors simply kicked the can down the road. This president is saying we’re not going to kick the can down the road anymore.”
Still, says Johan Gott, principal at A.T. Kearney consultants, in Washington, D.C., “Donald Trump is driving this, but his concerns are widely shared by CEOs. It would be welcome if IP concerns could be resolved, for instance, but CEOs are asking if there will be collateral damage—and is it worth it?”