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On Volvo, Detroit, and the President’s Trade War

Automobile logo Automobile 7/10/2018 Todd Lassa
2019 Volvo S60 R Design 50© Automobile Magazine Staff 2019 Volvo S60 R Design 50

David E. Davis reacted to the "Buy American" movement in the 1970s, a good decade before he founded this magazine, with a memorable retort. "Real Americans drive American cars" read a popular bumper sticker of the day.

"Real Americans drive what they damn well please," David E. responded.

Volvo's gala opening of its first American assembly plant, in Ridgeville, South Carolina, the other week, reminded me of David E. 's comment. Volvo officials and South Carolina Governor Henry McMaster were all smiles and apolitical comments and platitudes during the June 20 ceremony. Then Sweden's ambassador to the U.S. took the stage.

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"We are a bit worried about the trade agenda," particularly with regard to steel, aluminum, and auto tariffs, Ambassador Karin Olofsdotter told the crowd in Ridgeville. "Those of you who have influence, I hope you bring this forward."

a microwave oven sitting on top of a car© Automobile Magazine Staff

Volvo is in a particularly precarious position with its new U.S. factory, which will employ about 1,400 local workers when production of the S60 starts up this fall, but is scheduled to grow to 4,000 workers when production of the next-generation XC90 is added in 2021. The Chinese-owned Swedish automaker will ship 2.0-liter engines from Sweden for the Volvo S60 (and later, the XC90), only to have the assembled vehicles shipped all over the world.

That is, potentially, a lot of tariff—engines coming in to the U.S., and completed cars going out. Backstory on Olofsdotter's comments is that she was directing them to the Trump administration's U.N. ambassador, Nikki Haley, who sat two rows in front of me at the plant opening. Haley was governor when South Carolina offered Volvo the winning concessions package in 2015. Apparently, Ambassador Haley wasn't pleased (I could see only the back of her head).

Other automakers, from Mercedes-Benz to General Motors also are worried about the Trump administration's hardline stance on tariffs in the interim.

President Trump has a point about China and its trade policies and restrictions with the U.S. The history of Chinese-owned companies stealing intellectual property is well known, although experts on the matter often contend the Trans-Pacific Partnership trade policy that 11 countries signed last March would have rectified much of the problems of trading with China. Despite more than half a century of living with a global economy, the president prefers to go it alone on trade, though he has yet to understand how many German sport/utility vehicles are built in non-union plants not far from the new Volvo factory.

The European Union's 10-percent tariff on U.S.-built cars seems significant in light of our 2.5-percent tariff on theirs, though among the Detroit Three it only matters to GM, which has sold Opel/Vauxhall to PSA Peugeot Citroen, and Ford's Mustang exports. Mainstream Fords and, of course, Fiat Chrysler have significant European production in the EU.

a car parked on the side of a road© Automobile Magazine Staff

GM is left with its decades-old struggle to sell its prestige cars, Cadillac and Corvette, and now Chevrolet Camaro in light of the Ford Mustang's success there. While it would be nice to see all those cars, and Jeeps as well, enter the EU with just a 2.5-percent tariff, that's not going to boost Cadillac sales, even if they could thus be sold as bargain-priced Mercedes or BMWs. American luxury cars in Western Europe, especially Germany, are like European full-size pickup trucks in the U.S.—killing the Johnson administration-era Chicken Tax isn't going to make much difference.

President Trump's stated end-goal is to prompt more investment in U.S. factories, and thus provide more factory jobs for many of his staunchest supporters. The fear, even among Republicans, is higher car and truck prices and a downward spiral in sales. That hasn't happened quite yet. The other risk is that Trump gets what he wants and U.S. auto capacity rises to the untenable levels it had reached by the 2008 Lehmann Brothers collapse.

a car parked inside a building© Automobile Magazine Staff

The only automaker that needs added capacity now is Tesla, and its CEO, Elon Musk, apparently has found it by signing a deal with the municipal government of Shanghai for a new factory to be built there in three years. Tesla's news, just announced on Tuesday, has my fellow Musk skeptics arguing that you can't build a 500,000 annual capacity plant rising from nothing in such short time.

"If anyone can get a new plant up and running in two years, the Chinese can," Asian auto industry expert Michael Dunne, of the consultancy firm ZoZo Go, told me in an email.

To me, the more astonishing aspect of a Chinese Tesla plant is that it will be the first non-Chinese company to own 100 percent of the production facility there. But first-class global electric vehicle suppliers will set up shop next to Tesla's factory, "cementing China's position as the king of the hill in EV production," Dunne says.

And it won't be the first automaker to achieve this level of efficient factory construction. Geely-owned Volvo and South Carolina signed the deal for the U.S. plant in late May of 2015. Full production starts this fall, about three-and-a-quarter years later. It has been going perfectly so far for Geely and Volvo until a trade war gets in the way.

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