Trump imposes 25% tariffs on car imports

0:04Hello and welcome to Business Matters here on the BBC World Service and what's been another a pretty important day for global trade coming up on the programme. As well as that, Australia moves to ban so-called non-compete clauses. We'll find out why. We'll take you to Baltimore a year on from that container crash. Our reporter has been finding out how and if the area is recovering. And one of the cinema's biggest franchises is back, so he'll be starring even in Avengers Doomsday. There's so many characters, and they did a slow reveal were like two or three chairs at a time. It was crazy. It was crazy.

0:42We're joined on the program despite two guests on opposite sides of the world. Stephanie here, before we get into the serious tariff situation discussion, again, research on technology and ethics, originally from Illinois, but now living in London. Are you an Avengers fan? I'm a Tom Hiddleston fan, so yes. There you go. Also, we go with this Karen Percy, our very own senior freelance reporter in Melbourne, superhero and a heroine in her own right. Are you a fan of... Oh, look, categorically no, but I'm having to rethink that with Stephanie's contribution there because Tom is, yeah, he's a good reason to watch some movies.

1:23Yeah, well, we're going to be talking about other people as well on the programme and has there been superhero fatigue? but we're going to start because there was a pretty important announcement made in the White House by the US President Donald Trump a few hours ago. So we'll effectively be charging a 25 % tariff. But if you build your car in the United States, there is no tariff. And what that means is a lot of foreign car companies, a lot of companies are going to be in great shape because they've already built their plant, but their plants are underutilized. So they'll be able to expand them inexpensively and quickly.

1:58But others will come into our country and build and they're already looking for sites. They're looking for mostly sites. They don't want to take the old buildings that are empty and falling down. They want to build new. That led to this reaction from the Canadian Prime Minister Mark Carney. This is a direct attack on the very workers that I stood in front of this morning at the Ambassador Bridge. A bridge that is a symbol and a reality up until now of the tight ties between our two countries, ties of kinship, ties of commerce, ties that are in the process of being broken. We will defend our workers.

2:38We'll defend our companies. We'll defend our country and we'll defend it together. The car industry is a crucial part of the global economy. So this is an important decision. Here to make sense of that announcement is our North of America correspondent Erin Delmore. The clearest way through it is to think of it as a 25 % tariff on all cars not made in the United States and no tariffs on cars made in the United States. He also made a mention that Americans would be able to deduct interest payments on their car loans from their taxes if their cars are made in America. You know, to me, one of the big things that stood out is he said he's not budging.

3:20He said that these tariffs are permanent and that he's not putting this forward as a negotiating tactic to try to get concessions from America's trade partners in future tariff negotiations. He said, this is permanent. We are going to bring domestic production, domestic manufacturing of cars and trucks back to the United States. What about car parts coming into the US? Is there any clarification yet as whether they may face import duties as well? Because that would be significant, wouldn't it? Absolutely. Here's why it would be significant. Car parts can come in from foreign suppliers, but they also are made in Mexico and Canada as well and then cross borders into the United States into U.S.

4:00production facilities for cars that look to be U.S. made. They look and purport to be American-made cars, but perhaps within the cars there are not American-made parts. Those are foreign-made parts. And so now the question, yes, is will they be tariffed? The best indication and reporting we have now is that the answer to that question is yes. It is, yes, that appears to be the case. Karen, firstly, you, this announcement, I mean, we are used to lots of tariff announcement. this seems a pretty serious one because Donald Trump has clearly said he's not going to withdraw these tariffs. Absolutely and it's a really interesting line in the sand and listening to Mark Carney there you know having spent a lot of time in Canada you know the Canadian auto sector is hugely reliant this is you know hundreds of thousands of jobs billions of dollars so very significant but I think around the world now it's not going to affect Australia we don't make any cars anymore, haven't for quite some time.

4:58So it won't have an impact directly in that way. But, you know, these things have a tendency of having a big ripple effect, right? And across other sectors and, you know, the steel aluminium tariffs that will be coming onto Australia, already there's shaking the chain on drugs and medicines. That's something Australia provides a lot of medicines to the US and brings a lot in. We have a free medicines policy or program for lots of Australians who rely on the government to buy for no cost or low cost medicines. Ireland's also worried about it. But I mean, I don't know, can he really have a permanent tariff?

5:38I don't know. I don't know whether that's possible. I would imagine unless he intends to be the permanent president, I wouldn't think there'd be permanent tariffs, but I don't know. And I don't think we should be predicting too much at this point. Stephanie, it is a complicated issue, tariffs here, because the global car industry operates in so many different parts of the world. Yeah, and I guess it just, it seems interesting, because it's also like, what will American voters tolerate, right? So if cars become more expensive, and Americans need to upgrade their cars, they're going to start delaying those purchases.

6:13And, you know, this is one of many sectors where we're seeing Mr. Trump make trade harder, make things be more expensive. At what point does that tip the economy into recession? At what point do voters start getting angry? And could that carry into the midterms, which I know seem very far away in two years, but they will come up faster than many of us would perhaps be emotionally prepared to admit they're coming fast. They do. These things do come around quickly. Donald Trump would say, on the other hand, that these measures of his are designed to bring jobs back to the US, he did say, wouldn't be inflationary.

6:47Some economists, many probably would disagree with that. Around 50 % of cars sold in the US are imported. It is the world's biggest importer of cars. About 22 % of those imports in 2024 came from Mexico. Juan Carlos Baker-Peneda, of course, familiar voice on this programme, is Mexico's former vice minister for foreign trade, I'm currently a researcher at the Pan American University in Mexico City. And you would have heard from those sounds there that Juan Carlos is not with us at the moment. Oh, he's back with us. Hello, Juan Carlos. I am. Yeah. You know, there's a lot going on in the world. A lot of confusion about many things.

7:28You're in Mexico. I am. Yeah. Yes. What do you make of this decision? It could have a huge impact on the car industry there. Yes, absolutely. And well, thank you for having me in the program. I love speaking with you and the audience. The consequences of this are not entirely clear right now. But as you say, the impact on this is very significant because cars represent the largest exports of Mexico to the United States. It also represents a significant sizable contribution of the GDP. anywhere between 8 % and 9 % of Mexico's GDP somehow is connected to the automotive industry. So the fact that these tariffs are announced, the fact that President Trump seems to have no regard whatsoever for the USMCA and its rules, clearly is very disturbing.

8:18Right now, today, the Minister of the Economy, Secretary Marcelo Ebrard, and his team are in Washington, and it has been reported that they will be having meetings tonight and tomorrow with the people of President Trump's cabinet, the Secretary of Commerce. And clearly something has to be worked out because if the tariffs are imposed, as the president suggests, well, the impact on Mexico is going to be significant. And it's going to change the mood, I would say, Rojo, between Mexico and the United States right now. And the relationship as it is is going through some tense moments. And this clearly is not going to help at all.

8:55The USMCA, of course, is our treasure, which I think you played a part on in between the United States, Canada and Mexico, sort of free trade agreement there. And it is still bits of this are unclear. But if these tariffs come, and let's be very clear here, such a crucial part of the Mexican economy, 25%, and would lead to some companies maybe moving back to the US. So we're talking potentially about hundreds of thousands of jobs going here. Well, correct. And that is allegedly that is the intention or that is the rational that President Trump is following behind this decision of his that was announced today.

9:33Do you understand that rationale? You know, many countries would like manufacturing to come back to them. No, I was going to say precisely that, that on paper, the discourse, well, seems to be more or less understandable. But when you actually consider what it implies to move those plants or to manufacture in the United States, well, you realize that the cost of doing so is going to be super expensive vis-a-vis what now the companies are experiencing when they manufacture in other places such as Mexico. Now, in addition to that, the reality is that you have to consider not only the automobile manufacturers per se, but also the supply chains that bring along in order to make that final car that you and me or anyone else who's listening drives around.

10:23So it's not that easy. I don't believe that tariffs really are going to be relevant for the decision of some plans moving back to the United States. So it seems that there are no winners and all losers in this new dynamic, Rahul, because clearly countries are going to protest and countries are going to shout back at the United States and we might be at the brink of a world trade war, I'm afraid. Juan Carlos, always a pleasure having you on the programme. Stephanie, I was intrigued by that point you were talking there about voters, prices, if they do go up, the sort of impact that will have. Because, you know, there is some polling at the moment that, you know, the base of Donald Trump really likes some of the things he's doing here.

11:09Yeah, I mean, it's going to, you know, we're only, what, two months since the inauguration. It's going to take a long time for the base to be shaken by anything that the president's doing right now. So they're going to love this. it's that's not really the issue. The issue for the midterms in two years time is what happens with swing state voters and just swing voters in general. So people that are really cost conscious, and it's hard not to be cost conscious, conscious of the United States with inflation being high, you know, egg prices have still not fallen. And there's still shortages. Housing's expensive, education's expensive.

11:42Now you're going to make cars expensive. That's one of the biggest purchases that Americans make, right? So these are all really big. And it takes a long time to build up your supply chain and reroute it back into the United States. So the benefits that Mr. Trump is calculating on will not be felt for years. It'll take a really long time to reroute those supply chains. Meanwhile, the effect of the tariff hits instantly. Let us hear a couple of more voices now. Firstly, here's Glenn Stevens. He's Executive Director of Detroit-based Auto Industry Group, Mitch Otto. He told me these tariffs are bad news for the industry and customers.

12:23We don't see any positives in the short term. We had anticipated this. The president had signaled this. But about half of the vehicles sold in the United States every year are imported, 7.68 million last year. So this is a significant shock to the system. We also have steel and aluminum tariffs. We have China tariffs, now reciprocal, and now these tariffs. The cost of the vehicle, the input cost will go up. We expect anywhere from$3 ,000 to$10 ,000, depending on the transaction price of the vehicle, it will increase. And in the U.S., a vehicle already costs$49 ,000 to purchase new on average. So it's already at an all-time high.

13:04We're concerned about this. We have a lot of questions right now tonight that we're trying to sort through. What's the top one on your list that you're going to try and answer? Which is the one you're struggling with at the most at the moment? Do you try and make sense of this? Yeah, the number one issue is our vehicles from Canada and Mexico, because of the existing USMCA agreement, are they included in this? It appears that they are, but we don't have confirmation of that. And that is a big situation, particularly for the companies based in Michigan, Ford, GM and Stellantis. Yeah, and we heard from Juan Carlos there about the impact of the USMCA that he's looking at that as well.

13:42Canada is another country that will be affected by the announcement. We heard from their prime minister, didn't we, at the top of the programme. Well, here's Flavio Volpe, the head of Canada's automotive parts manufacturers. It makes the entire North American automotive sector unprofitable. And not by a little bit. You need all of the parts to make the cars. And anybody who can't pay the 25 % surtax will be the first domino to shut down the rest of the industry. Okay. So when we're talking about Canada in particular, how many people work in your sector? Potentially, how many jobs could go here?

14:22There's about 500 ,000 total jobs that are either directly or indirectly tied into automotive parts, vehicle and tools manufacturer. 125 of those are the direct manufacturing jobs and the rest are logistics, service and financial services of that sector. And so the ancillary effects will be profound. When you say profound, how many of those jobs could go? Frankly, all of them will likely be on temporary layoff starting in about a week after these tariffs go into place. And that's in addition to 950 ,000 direct auto manufacturing jobs in the U.S. because no one will be making anything. When you say nobody will be making anything, Donald Trump says this will bring a lot of manufacturers back to the U.S., the likes of GM who make 40 percent of their cars outside the U.S.

15:21and bring them back into the U.S. Well, with all due respect to the President of the United States, I'm in the auto business. And the automakers have said that this will, to quote the CEO of Ford Motor Company, tariffs on Canada and Mexico will blow a hole through the US auto industry. The global car industry has faced many challenges, the pandemic recently being one of them. How big a challenge does it now face with these tariffs being imposed upon it? In North America, the challenge is as big or bigger than the pandemic, which forced companies, all of them, to shut down for 60 days because you couldn't guarantee the safety of the workforce and therefore couldn't make anything.

16:03It is going to reset a global balance where most of the Western automakers, European, North American, Japanese and Korean, were fighting off the subsidized oversupply of Chinese vehicles. into the global markets. And the American president is pulling the rug out from most of those Western markets and players. The Europeans are going to have a lot harder time keeping the Chinese out. It is a seminal moment, if he goes through with it. A seminal moment, according to Flavio Volpe, their United Auto Workers Union president in the US, Sean Fender, said, we applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades.

16:53Karen, bigger than the pandemic, a seminal moment. I think it gives you a sense of the scale of Donald Trump's announcement. Absolutely. And there's protection for, you know, 300 million, a market of 300 million plus, sacrificing markets, not just in autos. This is going to have domino effect for billions and billions of people across the world, not to mention the economic malaise more generally. I mean, I think we also, one of the things that I find interesting that hasn't been discussed is why American companies have been outsourcing for decades as it is. Partly it's to try and take advantage of much, much lower wages or perhaps lower environmental standards or other standards.

17:37And there's also been incentives that they've been given to perhaps move offshore, whether they're tax incentives or other incentives. Those were American companies, American executives that made those decisions. Are they suddenly going to bring everything back? I just think there's a lot of unanswered questions here. It's very simplistic and that's what we see from this regime, this administration. Everything's very, very black and white. There's no nuance. It's our way or the highway. And I just think it's very, very damaging on so many fronts. But this is where we're at. It's the disruption, it's the chaos, and it's then move on to the next disrupting, chaotic thing.

18:13And that is a bit of what you were saying, Stephanie, before, wasn't it? Because Americans have liked those cheap products, haven't they? Of course they have. And I think that what we're going to see is a lot of the companies making noises, if they can, that allow President Trump to claim a victory. So you might hear them say that they're going to bring manufacturing back to the United States. But as I mentioned, that's going to take a really long time. That's not something that would just happen overnight. Meanwhile, Mr. Trump is only in power for another four years. So, you know, it's going to be one of those things where either the voters will speak by the time of the midterms in two years or they wait it out.

18:51Now, that doesn't mean that it won't be painful. My point is you are not going to undo decades of globalization in four years of Trump protectionism. Let us bring in Innes Willicks now, who's been very patient. Thank you for being so patient. Chief Executive of the Australian Industry Group. We're going to talk about non-competes and the Australian budget in a minute, but this is such a huge moment and the threats of further tariffs coming in from Donald Trump in lumber, pharmaceuticals. Are you worried in the Australian industry group of what's happening to global trade? We really are, because we can see an unpicking from the Australian context of a free trade agreement that we've had with the United States dating back 20 years.

19:32And we can see proponents within the American administration trying to undo all of that. You mentioned pharmaceuticals. That's obviously a big concern to us within the Australian context. You've got agriculture, meat in particular, wine is another area. But these tariffs now that he's announced today on automotives have an impact on Australian industry too. One in four Australian jobs is trade reliant. a lot of Australian companies who export into the United States in automotive and in other sectors use Mexico in particular as a waypoint on the way into the American market. So this is not just going to impact Canada and Mexico, it's going to impact the global economy as was outlined previously.

20:22And the big problem for Australia, the big concern that we have is that our top two trading partners are China and the United States. And if this sort of grows and sort of envelops the global economy into a sort of broader trade dispute, Australia is probably among the most, if not the most, exposed country in the world when it comes to ripple effects and becoming collateral damage from a global trading dispute. I bet your phone's busy at the moment. What are your members saying to you? Because it's not just the threat of tariffs, It's the whole uncertainty of where we're going with it. Are they going to be put in place?

21:01Are they going to be withdrawn? Is it hard for a lot of Australian exporters to try and plan in this environment? Oh, it is. And you've just nailed it there. It's the lack now of certainty and predictability, which is really sort of gnawing away at businesses, trying to think through the impacts. We had the Australian budget, national budget here on Tuesday. And, you know, despite sort of the domestic conversations that were going on around things related to the local market, always in the background is the uncertainty, the unknowing of what the Trump administration will do and how it will impact the economy.

21:42And that's sort of the deep undercurrent that's running through debate here at a business level and at a political level. It is that uncertainty, that unpredictability, and how it will then flow through whatever decisions are made. Obviously, big concerns here around that broader trading relationship that we have with the United States, that long historical relationship, and how that may well be upended by what the administration is doing at the moment. Karen, 30 seconds, because we've got to go to the news, but you made a point before. And I know you were saying, you know, Donald Trump's looking after his own, but it's affecting the rest of the world.

22:18But that is his job, to look after Americans. Absolutely. But America's always had, well, many of their leaders have had that bigger picture understanding the global impact. And I don't think he either understands or cares. And I think that's a worry for all of us. And it is. It's just my way or the highway, regardless of the collateral damage. We're going to talk about the Australian budget when we come back. Non-competes as well. And Salmon and Australia. We're going to have a bit of a continuing our conversation about Australia for the next five or ten minutes when we come back after the news.

23:04Welcome back to Business Matters. We've got Stephanie who is in London but from Illinois giving us that US perspective, Karen Percy, giving us that Australian perspective. In Australia, Anthony Albanese's government, if you would have heard Roger talking about this on the programme last night, delivered its final budget before an election in May, announcing surprise tax cuts more spending on healthcare, defence and energy subsidies. Jim Chambers, Australian Treasurer, spoke, Jim Chambers, Australian Treasurer, spoke about the global economic challenges and the chances Australia has. Speaker, the global economy is volatile and unpredictable.

23:40The 2020s have already seen a global pandemic, global inflation and now the threat of a global trade war. The whole world has changed as a consequence. Tariffs and tensions abroad have been accompanied by storms here at home. Australia is neither uniquely impacted nor immune from these pressures, but we are among the best placed to navigate them. We're emerging from this spike in global inflation in better shape than almost any other advanced economy. There we go. That was Jim Chambers there, Australian Treasurer. Ines Willock still with us. One of the key areas he was talking about as well was non-compete clauses which have been abolished.

24:25Can you just explain to our audience what they are and why they've gone and what you make of that? Well, it was sort of one of those decisions that came pretty much out of the blue, out of nowhere in the budget. What it means is that what is proposed is that from 2027, employees being paid under$175 ,000 Australian would be exempted from being impacted by a non-compete clause. and the government in its budget pointed to areas like hairdressing, childcare workers and yoga teachers among those who are impacted by non-compete clauses at the moment. The problem that this has created is that firstly it did come out of the blue and secondly that there hasn't been a lot of consultation.

25:17The fact is that non-compete clauses in Australia are pretty rare and particularly at levels, at those sort of pay levels, but they're also very rarely enforced. But they're seen by employers as a way basically to try to protect their intellectual property, their customer base and their ability to sort of, you know, train and upskill workers without the risk or the threat of losing someone overnight and taking away that intellectual property or members of their customer base. So it's become very controversial and a very hot topic out of the budget. Amongst all the other issues that are mentioned, it's sort of become sort of a totemic issue between employers and unions who have been pushing this behind the scenes for some time.

26:13The government would argue that it's a productivity measure. employers who I represent would argue that it's a productivity stifler because it will hold up, you know, it will hold up people and employers from wanting to train people to a particular level. And then also the concern around it sort of building mistrust and diminishing harmony within workplaces. So, it's got a long way to play out. But non-compete clauses are obviously controversial. They're usually used at sort of higher levels, senior managers, executives and the like, and enforced at that level, but not at the lower level. They are.

26:55Karen, what have you made of this? I think it's, I agree that it's interesting that it's come out of the blue in that way, but there has been, as Innes is saying, some lobbying behind the scenes by the union movement. And some of the stories that certainly have come out in the reporting today about, you junior workers in areas that you wouldn't think that, you know, IP or taking clients would actually be a real risk. And there was one young woman quoted who, you know, she couldn't go anywhere where there might be potential clients of a company. I mean, that's a pretty broad brush. So I think it's not a big problem, but the argument has been that it has stifled people from, you know, making more money, and that's a huge problem across a lot of the Western world at the moment, is stagnating wages at a time of cost of living crisis, but also impacting people's movement.

27:52If they're concerned about the legal implications of moving from a job, they're not going to do it. And I think it's a real problem we have in Australia more generally, where the courts and the legal system and threats of legal action, you know, are often used when there should be much more sensible discussions. I do agree it perhaps is going to lead to a division between workers and employees, but there's a couple of years before this comes in, and I wonder if it's as much of a shot across the bow as something that they're really interested in, that in fact, we need to just come up with more sensible ways of retaining staff, but at the same time allowing people to move on and make more money and to grow.