Donald Trump’s feigned unpredictability has become the most predictable aspect of his administration. The president’s latest gambit is a threat of major tariffs against foreign car manufacturers, after he directed Commerce Secretary Wilbur Ross Wednesday to conduct a Section 232 investigation into whether foreign competition in the auto sector represents a threat to national security risk.
The market has shrugged off the news, with Toyota stock falling less than 2% during trading Thursday, and other foreign car makers like BMW, Hyundai, and Daimler have all paired back losses since the announcement Wednesday afternoon. If investors were taking the president seriously, one would expect a much larger reaction, given that Toyota, for instance, sells more cars in North America than even its than even its home base of Japan, as its projected to sell roughly 2.4 million cars in the U.S. this year alone.
This muted reaction is a testament to the global auto industries tendency to produce where it sells. Toyota for instance, produces 60% of the cars it sells within North America, and foreign manufacturers like BMW actually use U.S. plants as an export base for sales in third countries. But it’s also likely that investors are simply learning not to take Trump’s threats on trade seriously, after he has backed down from bluffs to withdraw from NAFTA, and declined to impose threatened tariffs on a range of Chinese imports in retaliation for alleged intellectual property theft.
The weakening power on the part of the president to shock markets is occuring in tandem with growing international immunity towards Trump’s seemingly hardball negotiating tactics. Axios reports that the even the president’s aids worry Trump is a “one trick pony” in negotiations, who will “threaten the outrageous, ratchet up the tension, amplify it with tweets and taunts, and then compromise on fairly conventional middle ground.”
The target of this latest threat is not really even foreign auto companies, but Instead Mexico and Canada, which have thus far resisted Trump’s demands for new NAFTA content rules which administration officials believe will shift more auto production to the U.S. “"It's a leak to put pressure on NAFTA,” Dan Ujczo, an international trade lawyer that specializes in Canada-U.S. trade tells Politico.
In other words, the auto tariff threat is part of a NAFTA-related bank shot, not a new policy initiative on its own. Further dampening the effect of the announcement is simply the time that it will take for the Commerce to build a Section 232 case for tariffs on auto imports. The steel and aluminum tariffs, for instance, took 11 months to go into effect from the date of the announcement of the investigation. By this time next year, it’s quite possible that Trump is too hamstrung by his dependence on a Democratic House of Representatives to act unilaterally on trade issues. This time next year the Democratic presidential primary season will be approaching, and the president may also be loathe to enact a highly visible new tax on popular products like Japanese and German autos that will fuel attacks on him by Democratic presidential hopefuls.
At the end of the day, it’s the domestic political situation that is the cause for Donald Trump’s weakening hand on trade. The president believes it easy to win trade wars when the rules of the game are so lopsided against you. There is some truth to this, but even so, it’s obvious that our trading partners still retain the ability to force economic pain on Americans in any trade war. If the president had the support and trust of most Americans that on the other side of this fight is renewed prosperity, he may have been able to hold out for a better deal. But with consistently underwater approval ratings and growing evidence that the Democrats will take control of the House, there’s little reason for our trading partners, or auto investors, to do anything but ignore Donald Trump and wait patiently for the American public to elect someone else.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.