Every other article at the moment seems to involve President Donald Trump as he seeks to stamp his authority on his time in the White House. As indicated in the campaign for the presidential office, Donald Trump is going to insist that more vehicles sold in the US are manufactured in the US. Immediately this has prompted a response from the German automobile industry which is one of the strongest in the world and heavily involved with the US.
So, what can we expect in the short to medium term? Has Donald Trump just lit the blue touch paper to a trade war with Germany?
Protectionism
Donald Trump did not hold back during the presidential campaign insisting that more products sold in the US should be manufactured in the US. He is also very keen for US companies operating overseas to repatriate more of their profits for reinvestment in their US operation. The president has already started a war with the German automobile industry with a recent threat to introduced tariffs of 35% on BMW vehicles manufactured in Mexico for the US market. When you bear in mind that the automobile industry is one of the strongest in Germany there is no way the German authorities will sit back and be dictated to.
Trump recently met the leaders of General Motors, Ford and Fiat Chrysler to go over his ideas and thoughts. The share prices of listed automobile companies in the US have been volatile over the last few days as uncertainty surrounding possible trade wars gain traction.
Is it all one way?
While there is no doubt the US is a major player in the automobile industry, and many vehicles are imported for sale in the US, it is worth remembering that German car manufacturers have recently increased their US output. Over the last seven years Volkswagen and Daimler have increased their US light vehicle capacity sevenfold to 850,000. It is also worth noting that US automobile manufacturers have significant exposure around the world including Europe.
The German authorities have responded to issues facing the German automobile industry if Donald Trump goes ahead with his policies but there may be a further backlash from the European Union as a whole. If we then look at the Japanese market, which also has a heavy exposure to the US, what does Donald Trump do there? At a time when worldwide trade arrangements are being torn up and renegotiated will the US really have it all its own way?
Uncertain times
Automobile company share prices are reflecting the growing uncertainty of worldwide trade arrangements with greater volatility. This is not to say that an acceptable deal cannot be reached between the US and its overseas counterparts but the potential information vacuum while trade deals are renegotiated is not helpful. When you also throw electric vehicles into the mix, a small but growing market, perhaps US companies will not be as strong abroad as they have been historically?
Elon Musk is one of Donald Trump’s business advisers and no doubt he will have an opinion on a potential car war between the US and the rest of the world.