What if, and hear me out on this, we end their subsidies whether or not they reopen the plant?
An idea for the next Libertarian Party platform, perhaps. Guaranteed to boost their national share of the vote from two percent to three.
If you think POTUS is pissed now, wait until he finds out that he can’t end those subsidies by presidential decree:
….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!
— Donald J. Trump (@realDonaldTrump) November 27, 2018
It’s good politics whether or not it’s good economics but my money is still on this saga ending with GM reopening the plant in exchange for new subsidies. (Or, if you prefer a more comically absurd outcome, with GM CEO Mary Barra threatening to close another plant if Trump doesn’t back off and throw in a few special tax breaks for the company while he’s at it.) Who has the leverage in this scenario, Trump or GM? On the one hand, he can do financial damage:
BREAKING: GM shares hit session low after President Trump tweets that “we are now looking at cutting all GM subsidies including for electric cars” after company announced 14K+ job cuts and plant closures. https://t.co/jn8limUSe7 pic.twitter.com/Rg7oknGclB
— CNBC Now (@CNBCnow) November 27, 2018
On the other hand, I’m not sure driving a major publicly owned corporation’s stock into the toilet is a political winner. And GM has weapons it can use too. For instance, yesterday’s announcement about the plants closing was couched in terms of changing customer preferences, with hardly a word about Trump’s trade war impacting costs. But GM has complained about that before and could do so again by naming it as a contributing factor in its decision to close the plants:
Earlier this year, GM lowered its profit forecasts for 2018, citing higher steel and aluminum prices caused by new US tariffs. And in June, GM warned that trade tariffs could lead to job losses and lower wages, telling the Commerce Department that higher steel tariffs would affect competitiveness…
“[T]he import tariffs probably accelerated the move,” said Edward Alden, senior fellow at the Council on Foreign Relations. “GM is eliminating its lower margin passenger vehicles to concentrate on higher-margin products, and the rising cost of steel probably made made those lower margin vehicles even less attractive than they already were.”
Just standing firm on the plant closing would itself be a heavy political blow by GM to Trump. He won the presidency as a protectionist strongman who’d keep jobs in the U.S. through sheer resolve and tough-guy bravado. The Carrier drama in the weeks before he was sworn in was a test of that promise, and he seemed to come through. Matt Welch remembers Trump’s presser at the time, in which he boasted that “the word is now out, that when you want to move your plant to Mexico or some other place, and you want to fire all of your workers from Michigan and Ohio and all these places that I won—for good reason—it’s not going to happen that way anymore.” GM walking away now from the Rust Belt would be stark evidence that that was a lie, that Trump can’t deliver for the working class like he promised. That perception of weakness is intolerable to him, both personally and politically, which is why he’s been so strident in the last 48 hours. He recognizes how dangerous this is to him. So, again, who has the leverage?
Before you answer that question, consider one more point. When he says he’ll cut GM’s subsidies, which subsidies is he talking about? Does he even know?
A person familiar with the matter told CNN Business that GM is unaware of any significant federal subsidies the company is receiving beyond a $7,500 plug-in tax credit, which goes to the consumer, not the company.
The federal government provides that tax credit for each plug-in vehicle purchased. However, this subsidy goes away once an auto maker reaches 200,000 electric cars sold. And GM may hit that threshold by the end of the year, making its 2019 and 2020 tax credits smaller.
“The entire industry qualifies for this. It’s nothing exclusive to GM,” said Jeremy Acevedo, manager of industry analysis at Edmunds.
All GM gets is the same electric-vehicle credit that everyone else gets and that’s going to phase out this year anyway once it hits the 200K mark. If Trump wants to cancel that credit — or to prevent the cap from being raised, as auto manufacturers would like — he’d need to get Congress to agree to do it, and to single out GM for punishment in the new legislation. How likely is that?
And it gets worse. In lieu of an exit question, read this short but ominous piece from Axios about the industry-wide threats to U.S. auto manufacturing. There isn’t enough demand for American cars to meet the supply; there’s no end to the trade war in sight; and tectonic charges towards driverless cars, SUVs, and electric vehicles are destined to further disrupt production. More plants will close. What will Trump threaten them with when they do?
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