The Trump administration has made the restoration of American industry a top priority and talking point from the beginning. It has pursued policies on trade in stark defiance of a decades-long economic consensus, tearing up or rewriting trade deals and escalating trade conflict with China.
Unfortunately, tariffs and trade barriers tend to carry costs. Trump has been learning this the hard way with the auto industry. American carmakers have been hit by new tariffs on steel imports, as well as punitive tariffs on car imports to China. Automakers have not been able -- or willing -- to sit idly by as this fight has played out. General Motors (GM, Financial), for example, has accelerated its strategic reorganization, including shuttering several plants, cutting back its workforce, and committing to new technologies and profitable platforms.
We have discussed GM’s new vision, as well as its commitment to transitioning to green technologies, in previous research notes. In this note, we discuss the recent political fallout of its decision. President Trump has raged against the move, as have numerous politicians in the states affected by the reorganization.
Presidential priorities
People remain deeply divided on the causes of Donald Trump’s election to the presidency in 2016. Yet, most agree that one factor was the defection of white working class voters to the Republicans, which helped bring down the “Blue Wall” in the Rust Belt. Their decision is understandable. Trump is in many ways a personification of these trapped Americans’ primal scream of rage and defiance against a changing world. They felt left behind, and Trump undoubtedly tapped into that sentiment during his campaign.
When GM announced it would be closing factories and laying off workers in many of the states that had flipped the election to Trump, the president was bound to react negatively. He almost immediately went on the attack, taking to Twitter in a fiery tirade:
“Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this is the THANKS we get! We are now looking at cutting all @GM subsidies, including for electric cars. General Motors made a big China bet years ago when they built plants there (and in Mexico) - don’t think that bet is going to pay off. I am here to protect America’s Workers!”
Disgruntled voters react
GM’s move spells trouble for the president. If he fails to deliver on his “Make America Great Again” rhetoric, he risks alienating the voter base that carried him over the line in 2016.
There are already signs of disillusionment. The furious reaction in the industrial heartland could be heard reverberating across the country in the days after GM’s announcement. GM workers in Ohio have called on the president to “step up” and do something to protect American factory jobs. They worry Trump will not fight for them and that his criticisms of the company will have no impact. Thus, it is unsurprising that Trump has taken GM’s actions as a personal slight -- they may directly impact public perception of his ability to make good on his promises.
Unfortunately, the specific threats Trump has made to date, such as ending GM’s electric vehicle subsidies, do not look particularly realistic. But that does not mean he has no tools at his disposal. The president has wide latitude in a number of areas, so Trump could yet make GM hurt. Still, we doubt anything he can do will meaningfully alter GM’s plans.
Verdict
For all of Trump’s bluster, and all the other political criticism, GM has no intention of changing course. It cannot afford to do so. The company was nearly killed by the last downturn. Taking significant transformative action before the next crisis makes sense. It will be painful for many workers, but that is the nature of business.
The Trump administration’s policies have served to exacerbate stresses on the American auto industry, not relieved them. That has been especially true for GM. The venerable automaker has bet big on China, so Trump’s trade war has imperiled its plans. Yet, GM needs China more than it needs Trump. While the prospect of lifting tariffs on American cars is welcome, GM must still navigate tricky waters. Trump attacking GM will not cause it to alter its strategy.
Disclosure: No positions.
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