David Bailey, Professor of Business Economics at Birmingham Business School spoke to CGTN Europe about the impact of Trump's tariffs on the auto industry and consumers.
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00:00David Bailey is a professor of business economics at Birmingham Business School.
00:05Great to see you again, David.
00:07Look, Trump dangled something to help the car companies.
00:11Is this handbrake turn an acknowledgement that tariffs could actually undermine that goal of revitalising American industry?
00:21Yes, I think it is.
00:22I think there's been a lot of complaints from Ford, Stellantis, General Motors, Tesla to the White House saying, look, that 25 percent tariff is not only on cars, but also components.
00:33We import components from elsewhere.
00:35It's going to push up costs in the United States.
00:37So what Trump has said is, well, you've got a two year grace period whereby you can reclaim some of that extra tariff cost up to a certain value of the car.
00:47Also, remember as well, these tariffs are going to be hugely regressive in the United States.
00:51They will raise revenue, which will be used to tax cut for very well off people, but the effect as well as to increase prices for ordinary people.
01:00So Trump needs to be seen to be doing something to try and keep the cost hit down for ordinary Americans.
01:07So let's look a little bit at which also companies who operate in America, what they're all doing.
01:11So Stellantis for now is shutting down an assembly plant in Canada, laying off about a thousand workers in the United States.
01:19Oh, and that hits a revenue we just mentioned, and they've withdrawn that 2025 guidance.
01:23What's your take?
01:25So they are not unusual in withdrawing the guidance.
01:28Mercedes-Benz has done the same thing.
01:31Volkswagen has said that profits will be at the bottom end of guidance.
01:35Volvo just announced a big cut in profit.
01:38So this is, you know, not unusual.
01:40And I think in the case of Stellantis, they're different in the sense they have big North American operations, so they're particularly affected.
01:47But also they don't have a CEO at the moment.
01:49Remember, Tavares packed things in not long ago.
01:52They're in the process of trying to find a new CEO.
01:55They've got a short list.
01:56They hope to do that by June.
01:57At the moment, they're being run by John Elkhorn, their chair.
02:01But they may need to speed things up in order to get a new strategic direction.
02:06And in terms of what you make of Europe's reaction so far, I mean, we've seen, you know, Jaguar and Angrover saying it's going to pour shipments to the U.S., BMW quietly raising the price of its two series, Volkswagen floating that idea of making more cars in the U.S.
02:21What do you think?
02:21So I think what happened was that the European and U.K. car firms really pushed as much stock as they could into the U.S. to buy a bit of time.
02:31So in the case of Jaguar and Angrover, they've got probably two months of stock there, which they can sell.
02:37That gives them a bit of time about, you know, what to do next.
02:40Of course, if there's a trade deal, that could help them.
02:43But they're going to have to make decisions about whether they shift production to the United States in the case of BMW or Mercedes or Volkswagen, whether they look to increase prices, squeeze dealer margins, reduce production in Europe, but also whether they want to diversify.
02:58And what are the markets they can target over time rather than the United States?
03:03Well, you know what I'm going to ask next.
03:04How is China's auto sector a place to ride out this tariff storm?
03:08Well, that's an interesting one, because essentially Biden had squeezed China out of the U.S. market anyway with 100 percent tariffs, even before the hurricane Trump actually hit.
03:22So China essentially is not in the U.S. market and they are busy kind of exporting all over the world.
03:29I think one of the interesting developments, particularly in Europe, is that Europe now needs to diversify its exports.
03:36It's looking to get closer to China.
03:38Those tariffs that Europe put in place on Chinese electric vehicles, I think, will be rethought.
03:44They may instead go for a kind of a minimum price.
03:47And I think one of the kind of inadvertent consequences of what Trump is doing is to really allow Europe and China to get closer together.
03:56So interestingly, I think China is very, very well placed in all of this.
04:00David Bailey in Birmingham, Birmingham Business School.
04:03Thank you very much.