How Trump’s Policy Decisions Undermine the Industries He Pledged to Help
Posted July 4, 2018 5:47 p.m. EDT
WASHINGTON — “The assault on the American auto industry is over,” President Donald Trump declared last spring in Detroit, promising auto executives that he would throttle back Obama-era regulations on vehicle pollution.
The moment embodied one of Trump’s main political promises — to promote pro-business policies that unshackle industry and the economy. He has pledged to create an oil and gas boom that will spawn “massive new wealth” and to renegotiate the North American Free Trade Agreement to eliminate “big trade barriers” for U.S. products. His new taxes on metal imports “have already had major, positive effects” on classic Rust Belt industries like steel and aluminum, White House officials have said.
Even as the president’s pro-business stance is broadly embraced by the corporate community, in some significant cases the very industries that Trump has vowed to help say that his proposals will actually hurt them. They also warn that policies designed to aid one group will eat into someone else’s business in ways that policymakers should have anticipated.
“I would like to tell the president, ‘Man, you are messing up our market,'” said Kevin Scott, a soybean farmer in South Dakota and the secretary of the American Soybean Association. The idea of changing NAFTA, he said, “gives us a lot of heartburn in farm country.”
At the same time, Scott said, China’s threat to impose tariffs this week on U.S. soybeans — in direct response to Trump’s tariffs on other Chinese-made products — is already having a negative effect on the prices farmers see. In recent days, Canada imposed its own retaliatory tariffs against the United States. And on Friday, General Motors warned that Trump’s threat of tariffs on imported cars could backfire, killing American jobs and leading to “a smaller GM.”
Scott voted for Trump, and he approves of administration efforts to roll back environmental regulations, “But if we lose those Chinese and Mexican markets, it will be hard to get them back,” he said. China and Mexico are the two biggest markets for U.S. soybean exports.
Richard Newell, president of Resources for the Future, a nonpartisan research organization in Washington, described the administration’s overall approach as “whack-a-mole policy” that suggests a lack of appreciation of the complexity of global commerce. “The law of unintended consequences abounds,” Newell added.
If nothing else, experts say, the unpredictability of many of Trump’s proposals — the lack of clarity on when or how NAFTA might be renegotiated; the risk of potential litigation over his rollback of auto-pollution rules; the ways in which other countries might retaliate against Trump’s tariffs — seeds confusion across the U.S. economy, making it tough for businesses to plan effectively for the future.
“That just wreaks havocs with American farmers and businesses with the investments they have to make,” said Matthew Slaughter, a professor of international business at Dartmouth College. “It creates massive uncertainty for these industries.”
Automakers, for instance, had sought looser emissions rules. However, Trump’s proposed rollback goes further than expected, and now automakers say it could ultimately spawn years of legal battles and perhaps even subject the industry to more regulations, not fewer, if individual states start enforcing their own, separate rules. They also fear that Trump’s recent threats to impose tariffs on imports of European autos could trigger a trade war, raising prices for all vehicles. In one recent meeting with Trump, the chief executive of General Motors, Mary Barra, told the president she would be happy with a deal keeping much of the current Obama-level pollution standards in place, while adding sweeteners for automakers such as financial credits for companies that invent more fuel-efficient technologies, according to two people familiar with the meeting.
Oil and gas companies say a Trump administration proposal to bail out the coal industry will cut into their market share, while steel tariffs make their production equipment costlier. Aluminum makers fear not only a tariff tit-for-tat, but also the looser vehicle-pollution rules, because one way to make more efficient cars is to make more car parts from lightweight aluminum.
A spokesman for the White House, Raj Shah, acknowledged that while some policies might not always be to the liking of specific industries, “A lot of these groups benefit from broader policies — all these groups benefit from the tax cut and regulatory relief.”
“The only constituency the president is looking out for is the American people,” Shah said.
Trump’s policies have their strong supporters.
“The steel tariffs, the aluminum tariffs, the auto tariffs, have the potential to put people to work in industries like steel production,” said Jeff Ferry, the research director for the Coalition for a Prosperous America, a nonprofit group that advocates closing the U.S. trade deficit. “The electorate is no longer buying the theories economists are peddling about free trade lifting all boats,” Ferry said.
‘Disappointed’ in the Rust Belt
The president has repeatedly promised to protect metal producers, iconic Rust Belt industries that the administration says are hurt by low-priced imports from countries like China.
American steelworkers have cheered his moves. “The steel tariffs are important to the growth and the survival of the domestic industry because of the massive challenge that global overcapacity presents,” said Scott Paul, president of the Alliance for American Manufacturing. “There is some evidence that the strategy may be working. You’re seeing a number of steel mills come back online.”
But not all metal producers agree with the administration’s strategy.
“We are disappointed by the broad tariffs on aluminum imports into the United States,” said Marco Palmieri, president of Novelis North America, an aluminum-maker. “This action does not provide relief from our industry’s most significant trade issue, which is subsidized Chinese aluminum overcapacity. Instead, the tariffs bring the unfortunate potential to increase cost for the consumer.” In late March, the Trump administration began imposing a 25 percent tariff on steel and a 10 percent tariff on aluminum from countries including Russia, China, Turkey and Brazil. On June 1, it expanded the levies to include Canada, Mexico and the European Union.
While the steel industry supports the tariffs, the aluminum industry is mostly opposed. The tariffs raise prices for aluminum, which helps smelters, the companies that make raw aluminum here. However, only a handful of smelters still operate in the United States.
The Aluminum Association, which represents the bulk of the U.S. industry, says that 97 percent of American jobs in aluminum are at what are called “downstream” businesses that shape the metal into things like auto parts or other goods. Those companies are hurt by Trump’s tariffs, because they must now pay higher prices for their raw materials.
By contrast, demand for aluminum increased under the stringent Obama-era fuel economy standards, which created a market for more lightweight cars that use aluminum rather than steel. The proposed rollback of the fuel standards will likely hurt aluminum-makers, the association said, as will the prospect of a legal fight between the federal government and California, which has promised to continue to enforce the stricter, Obama-era rules.
If California enforces the stricter pollution rules, that would in effect create two separate auto markets. Several other states have pledged to follow California’s lead.
“It’s quite disruptive to the companies bringing a car to market, and it’s disruptive to all of the suppliers of the car companies,” said Doug Richman, a technical expert with the Aluminum Association.
Coal vs. Natural Gas
Trump has sought to follow through on campaign promises to help the coal industry, but those efforts are angering oil and natural gas producers.
Trump has ordered Energy Secretary Rick Perry to “prepare immediate steps” to stop the closing of unprofitable coal and nuclear power plants nationwide. One proposal would order grid operators to buy electricity from struggling coal and nuclear plants for two years, using emergency authority that is normally reserved for crises like natural disasters.
Such a move would cut deeply into the market share for natural gas producers, many of which are also among the nation’s largest oil companies — a group Trump has also sought to support. Trump’s proposal “seems counter to what he campaigned on,” said Dan Eberhart, a Trump donor and the owner of Canary LLC, a Phoenix oil field services company. “He campaigned on unleashing America’s energy, but this tortured coal policy penalizes natural gas.”
Eberhart added that his business will also likely be hurt by the steel and aluminum tariffs, which “will raise the prices for materials for drilling rigs, pipes.” Rival producers in other oil-exporting nations “will not face that,” he added.
Cars and Uncertainty
In coming weeks, the Environmental Protection Agency and the Transportation Department are expected to jointly propose a new rule to dramatically roll back the Obama-era standard on tailpipe emissions. And Detroit is watching closely.
The Obama rule would have required automakers to roughly double the fuel economy of new cars, SUVs and light trucks by 2025, achieving an average of more than 50 mpg. Since Trump’s inauguration, automakers have complained to him that the Obama standard was too stringent.
But the administration’s current proposal would go so far in the opposite direction that, rather than simply loosening the Obama standard, it would likely set off years of litigation, creating regulatory uncertainty for automakers, say people familiar with the draft plan. The proposal, according to people who have seen it, would both cut back the Obama standard to 35-40 mpg, and would pre-empt states from setting their own standards.
That amounts to a direct challenge to California, which has a waiver under the Clean Air Act to impose its own, stricter, air pollution regulations on cars and trucks. California’s governor, Jerry Brown, has made clear that he will fight in court.
If California were to prevail, that could lead to the creation of two different sets of auto pollution regulations in the United States — one for California and the dozen or so states that follow it, another for the rest of the country. Automakers describe that as a worst-case scenario they want to avoid. “We are supporting some level of increased fuel economy year over year,” said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, which represents many of the world’s largest automakers. “Our customers don’t want to pay the unnecessary costs of separate regulatory proposals.”
Regarding the Trump idea to place tariffs on auto imports, she said: “While we understand that the administration is working to achieve a level playing field, tariffs are not the right approach.” They raise prices for car buyers, she said, “and invite retaliatory action by our trading partners.”
Executives and lobbyists from the nation’s Big Three auto companies have held a flurry of meetings at the White House and EPA, asking Trump and his officials not to move forward with the aggressive rollback of the pollution rules and instead to hammer out a deal with California, according to four people familiar with the meetings.
“The auto industry has always wanted one, rather than two or more standards across the country,” said Robert N. Stavins, a professor of environmental economics at Harvard. “This is very troubling to the auto industry.”
Still, Trump’s allies and advisers maintain that his moves will benefit the economy overall, even if they hurt some of the industries he said he wanted to help.
“On net, President Trump’s efforts to roll back regulations and create a better regulatory climate for all is better for these industries,” said Thomas J. Pyle, an adviser to the Trump campaign and president of the Institute for Energy Research, an organization that promotes fossil fuel use.