Trump's Tariffs Cause Chaos in Auto Industry

Summary

Episode Summary: "Trump's Tariffs Cause Chaos in Auto Industry"

Podcast: The Journal.
Hosts: Kate Linebaugh and Ryan Knutson
Episode Release Date: March 4, 2025
Description: This episode delves into the ramifications of President Trump's imposition of 25% tariffs on automotive imports from Canada and Mexico, exploring the ensuing chaos within the U.S. auto industry.

---

Introduction to the Tariff Turmoil

The episode kicks off with an in-depth conversation between host Kate Linebaugh and Thomas Koval, CEO of Legera Technologies, a Michigan-based automotive parts manufacturer. Koval provides foundational insights into his company's operations and the immediate impacts of the newly announced tariffs.

Thomas Koval [00:05]:
"I am the CEO of Legera Technologies. I live in Rochester, Michigan, not far from Detroit, the center of the automotive industry."

Unpacking the 25% Tariffs

Kate Linebaugh probes into the specifics of Legera Technologies' supply chain, highlighting the importation of materials from Mexico. The sudden imposition of a 25% tariff on these imports has placed significant strain on manufacturers reliant on cross-border components.

Kate Linebaugh [01:08]:
"As of today, those materials will be subject to a new 25% tariff."

Koval expresses uncertainty about the duration and permanence of these tariffs, emphasizing the precarious position manufacturers now find themselves in.

Thomas Koval [01:17]:
"They’re going to have to build their car plants... we built up inventory to try to see if this is only going to last for two weeks. We’re going to be fine. But after that, what happens?"
(Timestamp: 01:17)

Industry Sentiments: Instability and Chaos

The conversation shifts to capturing the broader industry sentiment. Koval initially describes the situation as one of "instability," soon acknowledging the pervasive panic gripping the sector.

Thomas Koval [02:20]:
"Instability."
(Timestamp: 02:20)

Thomas Koval [02:26]:
"There's probably a lot of panic at the moment as well."
(Timestamp: 02:26)

Reporter Mike Kalias joins the discussion, encapsulating the industry's mood with the term "chaotic" and elaborating on the severe implications of the tariffs.

Mike Kalias [03:37]:
"Chaotic. But I think it's pretty representative."
(Timestamp: 03:37)

Historical Context: From NAFTA to USMCA

To understand the current predicament, the episode revisits the evolution of North American trade agreements. NAFTA, implemented in 1994, had previously dismantled trade barriers, fostering a seamless automotive supply chain across the U.S., Canada, and Mexico. President Trump's renegotiation culminated in the USMCA in 2020, which, while introducing certain adjustments, maintained the tariff-free status for car parts and materials.

Mike Kalias [06:11]:
"The renegotiation that Trump did in his first term of NAFTA... auto executives went into this feeling like cooler heads were going to prevail in a way."
(Timestamp: 06:11)

However, with the recent tariff imposition, the longstanding cooperation has deteriorated, triggering a cascade of economic repercussions.

Automakers' Responses and Lobbying Efforts

Automakers across the board reacted swiftly to the tariff announcements. Mike Kalias details the intense lobbying efforts aimed at mitigating the adverse effects, emphasizing that these tariffs could distort the competitive landscape by disadvantaging U.S. manufacturers.

Mike Kalias [08:38]:
"They felt like they've seen some of the rhetoric and bluster kind of become more manageable once it's put into policy... it was almost as if he was acting like it didn't exist."
(Timestamp: 08:38)

Kalias further explains the strategic challenges faced by the industry, including the need to adjust supply chains and the potential financial burdens of relocating manufacturing operations.

Escalation into a Trade War

The tariffs didn't remain isolated to the automotive sector. President Trump's broader trade policies sparked retaliatory measures from major economies, including a 10% levy on Chinese goods and retaliatory tariffs from Mexico and Canada on U.S. imports.

Mike Kalias [16:34]:
"I think that's generally the expectation... it's going to get passed on to the consumers."
(Timestamp: 16:34)

This tit-for-tat escalation threatens to widen the economic strain beyond manufacturers to the very consumers who will bear the cost of inflated automotive prices.

Consumer Impact and Market Dynamics

Economists, echoed by Mike Kalias, project that American consumers will face significant price hikes on vehicles. Current estimates suggest an average increase of 7-8% on a mid-$40,000 vehicle, translating to an additional $3,000 or more.

Mike Kalias [16:34]:
"If a car costs right now mid-40 thousands... it's going to tack on 7, 8% in inflation to that. So that's a 3,000 or more hit."
(Timestamp: 16:34)

This surge exacerbates existing affordability issues, with car prices already elevated by approximately 30% since before the pandemic. The compounded financial pressure poses a formidable challenge for consumers, dealerships, and manufacturers alike.

Legislative and Future Outlook

Thomas Koval shares his perspective on the necessity of the tariffs while critiquing their execution. He advocates for a more balanced approach, emphasizing the need for stability and longer timelines to allow the industry to adapt effectively.

Thomas Koval [13:22]:
"I do understand the rationale behind the tariffs and I really do believe in US Manufacturing... I would ask for more time and a clear plan."
(Timestamp: 13:22)

Koval remains cautiously optimistic, believing in the resilience of the automotive sector despite the current turmoil. However, he laments that resources are diverted from innovation and efficiency improvements to crisis management.

Conclusion

The episode paints a vivid picture of an auto industry in flux, grappling with unforeseen tariffs that disrupt established supply chains and economic stability. As the trade war intensifies, the ripple effects threaten to reshape the landscape of American manufacturing, consumer spending, and international trade relations.

Key Takeaways:

• President Trump's 25% tariffs on Canadian and Mexican auto imports have destabilized the U.S. automotive industry.
• Manufacturers like Legera Technologies face uncertainty, increased costs, and the daunting task of adjusting supply chains.
• The tariffs have escalated into a broader trade war, with retaliatory measures from China, Mexico, and Canada.
• Consumers are projected to bear the brunt of these tariffs through higher vehicle prices, exacerbating existing affordability challenges.
• Industry leaders call for more stable and constructive approaches to bolster U.S. manufacturing without inflicting widespread economic harm.

---

Notable Quotes:

• Thomas Koval [01:17]:
  "They’re going to have to build their car plants... we built up inventory to try to see if this is only going to last for two weeks. We’re going to be fine. But after that, what happens?"

• Mike Kalias [03:37]:
  "Chaotic. But I think it's pretty representative."

• Mike Kalias [07:04]:
  "A piston... crossed the border six times before it got into a car. We don’t know exactly if that's going to get hit every single time."

• Thomas Koval [13:22]:
  "I do understand the rationale behind the tariffs and I really do believe in US Manufacturing... I would ask for more time and a clear plan."

• Mike Kalias [16:34]:
  "It’s going to get passed on to the consumers. [...] it's going to be borne by the consumer."

This comprehensive summary encapsulates the critical discussions and insights from the episode, providing a clear understanding of the complex interplay between trade policies and the automotive industry's stability.

Transcript

[Thomas Koval]

My name is Thomas Koval. I am the CEO of Legera Technologies. I live in Rochester, Michigan, not far from Detroit, the center of automotive industry.

[Kate Linebaugh]

Thomas's company makes parts for vehicles, things like the shelves inside Amazon vans and those spare tire holders at the back of Jeeps and Ford Broncos. How long have you worked in the automotive industry?

[Thomas Koval]

I've actually worked in the automotive industry my entire life, since I was 16 years old. I started working in factories in Germany and I'm originally from Sweden. I'm a big fan of Detroit and I'm a big fan of the auto industry.

[Kate Linebaugh]

How much of your production is in the U.S. and how much is outside.

[Thomas Koval]

Of the U.S. all our production is in the U.S. however, we do have material coming in from other countries. We have material coming from Mexico.

[Kate Linebaugh]

As of today, those materials will be subject to a new 25% tariff tariffs.

[Thomas Koval]

25% on Canada and 25% on Mexico. And that'll start. So they're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have.

[Kate Linebaugh]

President Trump has said these tariffs are necessary to fight fentanyl trafficking and illegal migration, as well as to build up US Manufacturing.

[Thomas Koval]

It's a very unpredictable time right now, and it's a very, very tough time. We don't know where these tariffs are going to go, so we're going to have to deal with that. But the question is, how long will it last for? So a company like ours, we built up inventory to try to see if this is only going to last for two weeks. We're going to be fine. But after that, what happens?

[Kate Linebaugh]

If you could use one word to, like, describe the conversations that are going on in the auto industry right now, what would it be?

[Thomas Koval]

Instability.

[Kate Linebaugh]

Not panic or.

[Thomas Koval]

There's probably a lot of panic at the moment as well. But now that it's real, I'm sure that there is. There's definitely some panic as well.

[Kate Linebaugh]

Welcome to the Journal, our show about money, business and power. I'm Kate LINEBAUGH. It's Tuesday, March 4th. Coming up on the show, the trade war is here and it's causing chaos for carmakers.

[Tim Higgins]

I'm Tim Higgins with the Wall Street Journal. We've got this spot to hear directly from the leaders behind the bold name companies we cover every day. Check out bold names from the Wall Street Journal, wherever you get your podcasts.

[Kate Linebaugh]

And what's the one word you would use to describe how the auto industry is feeling today?

[Mike Kalias]

A bit chaotic Sorry, that's three words, chaotic. But I think it's pretty representative.

[Kate Linebaugh]

That's our colleague Mike Kalias. He covers the auto industry and is reporting on how Trump's tariffs are going to affect carmakers.

[Mike Kalias]

And I think that has people freaked because there was this idea that this was a negotiating tactic. This is never really going to happen. I mean, tariffs on Canada and Mexico for the auto industry, you know, that's like DEFCON 1, right? This could wipe out profits for companies big and small. So, yeah, people are a freak today.

[Kate Linebaugh]

How will these tariffs impact the US Auto industry?

[Mike Kalias]

I mean, there is no industry that has more at stake than automotive. Of all of the trade that happens between Canada and Mexico, the car business accounts for nearly a quarter of that. About 23% of cars that are sold in the US are built in either Canada or Mexico. Half of the car parts that come into the country that are imported here to be put into cars, about half of that comes from either side of the border. That's $100 billion of stuff. And then beyond the car companies, there are thousands of parts suppliers.

[Kate Linebaugh]

When we talk about an American made car, what does that mean in reality?

[Mike Kalias]

Well, I think most people think of it as cars that are assembled inside of the US and, you know, most of the cars that get sold in the US Are built here. It's a small majority. But a lot of those cars, the guts of the car, is imported. A lot of it from Mexico, a lot of it from Canada. So it can be US Built, US made. But, you know, a lot of it's relying on foreign parts.

[Kate Linebaugh]

The auto industry's supply chain was shaped by the North American Free Trade Agreement. NAFTA took effect in 1994 and created a free trade zone between the U.S. canada and Mexico. Here's President Bill Clinton at the time.

[Thomas Koval]

NAFTA will tear down trade barriers between our three nations. It will create the world's largest trade zone and create 200,000 jobs in this country by 1995 alone.

[Kate Linebaugh]

President Trump in his first term, began renegotiating NAFTA. And that deal, known as USMCA, was finalized in 2020.

[Mike Kalias]

The renegotiation that Trump did in his first term of nafta, that produced what we call the USMCA now. I mean, it was really, you know, there were some incremental changes. It required some costs and some investment, and companies had to make more stuff in North America in order to bypass any tariff. But it was, you know, one executive referred to it as a rebranding. Right. I think auto executives went into this feeling like cooler heads were going to prevail in a way.

[Kate Linebaugh]

Under both deals, there were no tariffs imposed on car parts and materials. And so car manufacturing continued to move regularly across the borders with Mexico and Canada. So now the auto supply chain includes thousands of companies sending parts back and forth across borders multiple times.

[Mike Kalias]

Our colleagues at the Wall Street Journal did a very nice analysis just the other day about how it followed one part, a piston, a pretty basic component that crossed the border six times before it got into a car. Right. It was raw aluminum in Michigan and then it was shipped to Canada to make into a basic part and then back to Michigan for machining and then down to Mexico to be like finished, and then it went to Wisconsin at one point and then back to Michigan to be put in an engine. So we don't know exactly if in a case like that, and that's sort of the norm in the industry, we don't know if that's going to get hit every single time. But that's part of the sort of the freak out, right, is people don't know and they've got to assume the worst at this point.

[Kate Linebaugh]

When Trump started floating the idea of 25% tariffs on Mexico and Canada, how did the automakers react?

[Mike Kalias]

I think on the tariff piece, you know, they felt like they've seen some of the rhetoric and bluster kind of become more manageable once it's put into policy. But then as soon as, you know, a week or two after the inauguration, he announced a 25% tariff on Mexico and Canada. I mean, that was just kind of worst case scenario. I mean, he wasn't talking about redoing that trade pact. I mean, he was, it was almost as if he was acting like it didn't exist. Right. And so I think plans became a little more urgent then because it was so. It was so extreme.

[Kate Linebaugh]

And did auto executives try to negotiate with the Trump administration?

[Mike Kalias]

Yes, there's been an intense lobbying effort going on. You know, one big point they've made is like, look, you know, you can do this and it's going to hurt everybody in the industry, you know, GM and Ford and Nissan and Honda. But it's going to hurt the US Companies more because they have a more extensive footprint in North America and there are imported cars coming from Japan and Korea virtually terror free. And so this is going to create an unlevel playing field. It's going to help our competitors and it's going to hurt us. But I think the bottom line point that they've really been Trying to make to the administration is like, this is going to have the opposite effect of what you think. Like, this is going to hurt our ability to invest in factories and create U.S. manufacturing jobs.

[Kate Linebaugh]

Now that the tariffs are in place, what's the auto industry going to do? That's next.

[Mike Kalias]

Foreign.

[Tim Higgins]

I'm Christopher Mims of the Wall Street Journal. Every day we talk to the leaders behind bold name companies and you can hear from them in bold names from the Wall Street Journal, wherever you get your podcasts.

[Kate Linebaugh]

When Thomas Coval, CEO of Legera Technologies, first heard tariffs might be coming, he tried to come up with a lot of solutions.

[Thomas Koval]

As soon as we heard he was going to do the tariffs, we kind of went into a little bit of a war room scenario where we were planning out inventory levels. Can we do bonded warehousing? What are some of the solutions? Because ultimately we don't want to impact the customer. But the reality is when we look at it now, we're going to have to have some serious discussions with our customers about this. This is a pretty significant price increase.

[Kate Linebaugh]

So you anticipate passing along these tariffs to your customers, Ford or Jeep or whoever, and then they will pass, pass it along to the consumer?

[Thomas Koval]

Yes, that'll happen. We will try to do whatever we can to mitigate that.

[Kate Linebaugh]

Are you considering moving your supply chain.

[Thomas Koval]

Into the US we are looking at all solutions that work best for ourselves and for the customer and for the supplier. And I know that sounds like a very political answer, but that's, that's the truth. It's not so easy. So the truth is, say we wanted to work with our supplier and bring them back up to the United States. It's one thing to find the shop floor space and actually build a bank and move the lines, but you also have to do something called a ppap. You have to make sure that the product that's coming out of the new plant has been tested and verified. Cars are of course, a safety product, so they go through rigorous testing. And this takes time.

[Kate Linebaugh]

Yeah. What does that mean? Build a bank of material?

[Thomas Koval]

Yes. So you eat 10 cookies a day? So I produce 10 cookies a day. But now I'm gonna have to shut down production because I'm gonna move my lines to the United States for 10 days. So I have to build up on Saturdays and Sundays, which is overtime and cost money. Going to have to build up 100 cookies, preferably 130, because who knows, something might go wrong through the process. So I have to build up a bank of cookies until I start production. Back up again in the US.

[Mike Kalias]

How.

[Kate Linebaugh]

Much would it cost to do that?

[Thomas Koval]

Wow, that's a good question. It all depends. If you're able to build a bank, then potentially you can just spend about, I don't know, 500,000 to a million dollars to bank that material and move it up. But if you have to buy new tools and new equipment, depending on whatever commodity that you're in, it could be somewhere from 100,000 to, I don't know, $10 million, something like that. So lots of money.

[Kate Linebaugh]

Do you understand the rationale behind the tariffs?

[Thomas Koval]

I do understand the rationale behind the tariffs and I really do believe in US Manufacturing and I want to bring more business here. I just wish there was two ways that it was done a little bit differently. One, a longer and better timeline to prepare. And I would say also from the standpoint of it is quite punitive instead of, say motivating and whether you want to use carrot or stick, I guess it's my nature, I like to use carrot. I feel as this is more of.

[Kate Linebaugh]

A stick scenario and given the world that we're in, what is the thing you would ask for? Would you ask for just pledge to keep these tariffs in place so there's certainty and you can work around it or for them to go away.

[Thomas Koval]

So if I could ask Mr. Trump one thing, I would ask for more stability for the auto industry. So I understand the tariffs. Just wish that it could be, say more of a motivating standpoint, more of this carrot versus stick scenario and allow for a little bit more time. I want to see tool makers, die makers, machine builders, more manufacturing in the United States. I think it'll make us stronger. So if I could ask for something, it would be a bit more time and a clear plan and hopefully some type of agreement between the Democrats and Republicans of how do we want to handle industry in the United States. But that I think is maybe too much to ask for.

[Kate Linebaugh]

So how are you feeling right now?

[Thomas Koval]

I'm feeling uncertain. But the one thing that I will say is with automotive, with manufacturing, with Detroit, very, very gritty, hard working people. We've been through this before, I think hit from left to right for the last couple of years and we've been able to survive. I know that we will survive. I'm very positive. But instead of being able to focus on developing and making our business more efficient with cool technologies such as AI and machine learning and spending our money towards that, the industry is absorbing that money into dealing with having to hold more inventory and moving lines and Things like that. So that's the sad part about it.

[Kate Linebaugh]

Trump's tariffs have ignited a trade war. Overnight, China announced new tariffs after Trump added another 10% levy on Chinese goods. Mexico's president said she planned to retaliate. And Canada said it would impose 25% tariffs on nearly $100 billion worth of US imports. Trump then warned Canada that he could raise his tariffs even further. Economists have told our colleague Mike Calias that American consumers will bear the brunt of this trade war.

[Mike Kalias]

I think that's generally the expectation. I mean, it's going to get passed on to the consumers. And, you know, you see a lot of different estimates. But I think the sort of sturdiest ones I've seen is if a car costs right now mid-40 thousands is kind of the average that an American pays for a car, it's going to tack on 7, 8% in inflation to that. So that's a 3,000 or more hit. And there are estimates that are much more than that for larger cars. So, yeah, I think the expectation is going to be borne by the consumer.

[Kate Linebaugh]

So we've moved from the era of North American cooperation to a full scale trade war.

[Mike Kalias]

It sure feels like that. And it comes at a time where there's already an affordability problem in the industry. I mean, cars are something like 30% more expensive. People are paying 30% more for cars today than they were just before the pandemic. That's just going to exacerbate a problem that is already tough on a lot of American consumers and car dealers and companies.

[Kate Linebaugh]

Before we go, we're interested in hearing from you. Do you have any questions about what's happening with the Trump administration, about Trump's speech to Congress or the war in Ukraine or tariffs? Email us and let us know. Please send us a voice Note to thejournalsj.com that's thejournalsj.com that'S all for today. Tuesday, March 4th. The journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Christopher Otz. Thanks for listening. See you tomorrow.

[Tim Higgins]

Every day, Wall Street Journal reporters talk with the most powerful, influential and interesting people. And now we're bringing some of those conversations directly to you. I'm Tim Higgins. And I'm Christopher Mims. We're teaming up to ask tough questions of the leaders behind the bold name companies found in the pages of the Journal every day. Are you going to build that $20,000 vehicle?

[Kate Linebaugh]

No, because that market sucks.

[Tim Higgins]

Check out bold names from the Wall Street Journal. Wherever you get your podcasts.