As trade war escalates, U.S. car and truck industry is in a bad position

The Ford F-150 pickup truck has been the United States' bestselling vehicle for years. In Dearborn, a city near Detroit, a factory that once produced Henry Ford's Model A now cranks out one every 53 seconds.

The F-150 is so profitable — informed rumors suggest that each adds nearly $13,000 to Ford's bottom line — that it is known around town as "the bank."

It is also assembled in the United States with more American parts than most vehicles, and so about as impregnable as they come to President Donald Trump's trade policies. Even so, more than 15 percent of each pickup comes from Canada and Mexico and another 15 percent from outside North America.

"Tariffs on Canadian aluminum hit the F-150 hard," confirmed a top logistics manager.

The tariffs in question are Trump's duties of 10 percent on imported aluminum and 25 percent on imported steel, which took effect on June 1. They are not the only source of disruption to an industry responsible for $522 billion of exports and imports a year, more than one-tenth of the United States' trade.

Earlier this year, Trump levied tariffs on $34 billion of Chinese goods, including one of 25 percent on cars (another $16 billion of goods were hit last week).

China retaliated by raising its tariff on U.S. cars from 25 to 40 percent.

That would immediately hit $208 billion of car imports, not counting parts, according to the Peterson Institute of International Economics, a think tank. U.S. makes would be hit, too: four in five Chryslers and Dodges are made abroad.

The U.S. car industry, then, is on the front line of Trump's trade war — ostensibly its beneficiary, but also its victim.

A tour of factories and watering holes across Michigan's car country reveals plenty of support for Trump's aims. The UAW, a big union, endorsed his stance on trade. Near the F-150 plant, a white-collar autoworker confided that she thinks Trump's policies are justified, even if they cause a bit of pain for her industry, because of Chinese protectionism and theft of intellectual property.

But even bosses sympathetic to Trump's stated goals remain perplexed by his tactics. A survey conducted for the Economist by the University of Michigan found that the metals tariffs are hurting the state's car-parts firms. Travel up Ford's supply chain from the Dearborn plant, and the vulnerabilities become apparent.

Flex-n-Gate, a large maker of car parts, has invested $160 million in a gleaming plant in a depressed part of east Detroit specifically to serve Ford trucks.

Get off the Edsel Ford Freeway, meander past boarded-up churches, burned-out warehouses and a Dollar Store, and you arrive at Goodwill Automotive, which has made simple parts for Ford and others for decades.

Its managers confirmed that prices for steel inputs are up and its suppliers are scrambling to secure stock before they rise further. A crew leader sounds baffled by Trump's actions: "Why fix something that's not broken?"

Drive a few hours to Grand Blanc, a suburb of Flint, and you find another Ford supplier with a story to tell. MacArthur Corp. makes permanent labels "for almost every vehicle sold in America."

Tom Barrett, a former Wall Street man, returned to his father's firm and helped save it when the Lehman collapse pushed the auto industry to the brink a decade ago.

He is again worried. He discerned an inflationary pressure not seen since the 1970s. Besides tools and hard dyes made of steel, the price of polypropylene film, which is derived from petroleum, is going up. So is the cost of paper, adhesives and freight.

"They are in cost-cutting mode, delaying planned investments, imposing travel bans and offshoring large nonmanufacturing departments," he said. "It's like the early days of the Great Recession."

Carmakers are indeed feeling the squeeze.

General Motors confirmed recently that tariff-fueled increases in commodity prices led to $300 million in extra expenses last quarter, compared with the same period in 2017.

Ford has reported that tariffs cost it $145 million in the second quarter and forecast that trade tensions may cost $500 million to $600 million this year.

For consumers, Trump's trade policies could inflate the price of a typical small car by $1,408 to $2,057, according to the Peterson Institute.

The nightmare scenario for carmakers is Trump's threatened blanket tariff on cars, combined with the collapse of NAFTA.

Mexico and Canada account for roughly half of all American auto imports.