Tariffied

0:00It only Tuesday, but already a big week for President Trump. He threatened tariffs on imports from China, Mexico and Canada, then decided to pause for 30 days on Mexico. They've agreed to put in 10 ,000 soldiers permanently, like forever, 10 ,000 soldiers at their side of the border and stop fentanyl and illegal aliens from coming into our country. Pause for 30 days on Canada, although the tariffs on China remain. That was just an opening salvo. If we can't make a deal with China, then the tariffs will be very, very substantial. China responded with some minimal tariffs on American goods. And if you're wondering what will get more expensive for you, you're in fine company.

0:46The American auto industry is in a state of panic because American cars are made in bits and pieces all over the world. That's next on Today Explained.

1:07This is Today Explained. Mike Whalen. I'm the auto's reporter for CNBC.com. And what have the last 72 hours been like for you? The last 72 hours have been, for lack of a better term, chaotic. A lot of back and forth on what is happening. A new round of executive orders signed by President Trump today, This time for tariffs on goods from Canada, Mexico and China. President Trump now pumping the brakes on a trade war. Pausing tariffs on both Canada and Mexico for at least 30 days in exchange for both countries beefing up U.S. security on their borders. A fresh trade war between the U.S. and China has just kicked off.

1:51A lot of communication with companies, with politicians, with lobbyists, and just trying to understand kind of what's going to happen and whether or not we are going to have tariffs on Mexico, Canada and China. As of this morning, I mean, we have a 10 percent additional tariff on goods coming from China, and that is in addition to any other tariffs that were already occurring. But the president has backed off on tariffs against Canada and Mexico for at least until next month. And those negotiations are going to continue. We can and we'll do things together. And that is my focus. My job is to stand up for Canadians.

2:35That's exactly what we're doing. Many kind of were looking at this as a negotiation tactic for him to kind of have leverage over trade talks. So the call with Mexico went very well in the sense that they're very strong now on the border. They're going to put soldiers there. And now we are still in negotiations with Mexico and Canada. And China is obviously doing some retaliation measures as well. All right. So among the industries that will be hit hard by tariffs, and we know this because they were hit hard the last time we did a trade war, are car makers, the auto industry. How spooked are manufacturers right now?

3:16Honestly, they have been taking a wait-and-see approach for months now, and they're still kind of in that wait-and-see approach. Things got a little accelerated on Saturday when Trump did sign the executive order, and the automakers were trying to look into some measures that they could try to avert any of this. But I mean, we're talking about billions upon billions of dollars of business. And the auto industry is a very complex kind of ecosystem of companies, people, labor. It's not something that you can just move on a dime. So they do have contingency plans, but it's not going to be billions upon billions of dollars in offsetting the costs that are going to happen with the tariffs.

3:59It's going to be kind of general things like maybe changing pricing, changing where a part is imported from. But I mean, all of this takes time. It's not going to happen just overnight. All right. So we've got Mexico and Canada postponed, but the China tariffs are in effect. What do they specifically mean for automakers? Where are the parts here that could get complicated? We don't have a lot of vehicles being imported from China into the U.S. There are a couple. If you want to look at some well-known ones from the Detroit automakers, the Buick Envision, which is a small kind of mid-size-ish crossover.

4:37And then also Lincoln, one of their new vehicles is imported, the Nautilus that comes from China. So those two vehicles will essentially have another 10 % tariff unless Trump decides to allow some exclusions, which we haven't seen happen yet. But where this is really going to be impactful is the parts. The global automobile system is all over the world, and parts come from all over the globe for the U.S. manufacturing, for Mexico manufacturing, for South Korea manufacturing. And where it's really going to hurt, a lot of people believe, is where those parts are coming from. And if you want to talk about EVs, China essentially controls most of the kind of supply chain for electric vehicle batteries and the raw materials that are needed for those batteries.

5:26So we're going to see how that kind of shakes out for electric vehicles. A 10 % tariff is put on something coming from China. And that means what for that Lincoln vehicle or that Buick vehicle? That is going to cost another additional 10%. So whatever that cost is for the company who may or may not be importing it, then it would increase 10%. And the companies could try to offset that, or they could kind of just pass the costs down to consumer, or they could try to get suppliers to cut their costs to offset that. But I mean, in general, when you're looking at the tariffs, there are a lot of estimates out there around$3 ,000 or more, depending on the vehicle price that will increase kind of for the company to import that vehicle.

6:10So part of the problem with Mexico and Canada, part of the problem for Donald Trump, is that automakers are really integrated between the U.S. and our northern and southern neighbors. Can you walk us through the manufacturing process of a vehicle that sort of spans the three countries? It spans a lot more than three countries. When you kind of look at how the manufacturing process is set up, you have the automakers that everybody knows, GM, Ford, Chrysler, and they produce vehicles. And those vehicles come off the assembly line, let's say, in Detroit. Right. But feeding into that automaker are three different tiers of suppliers.

6:54And each supplier kind of produces a part. Let's look at the Chevy Silverado or the Ford F-150, two of the best selling vehicles in the country. Those vehicles have more than 20 countries contributing parts. Yes. So we are talking about a very complex ecosystem. system, and each of those vehicles has 2 ,500 to 3 ,000 components. Not just parts, but components that those parts are made out of. So when you think about the global auto industry and the interconnectivity of it, we aren't just talking about if this vehicle comes off the assembly line in Detroit, it's made in the U.S. That's not how it works.

7:35There are parts from all over the globe contributing, and these parts go back and forth a lot. That's one of the things that the automakers are concerned about with the tariffs on Canada and Mexico, where if a part goes across the border two or three times, some say industry officials seven or eight times, it's going to get hit with additional costs every time it goes back and forth. But yeah, I mean, we are talking about countries like Australia, China, Germany, Honduras, Hungary. It's not just a U.S., Mexico, Canada production. It's just global.

8:14An increase in vehicle prices is bad for me, the consumer, who does not own a car, incidentally. I live in a walkable city, but it's bad for the consumer. What does it mean for the company? Like GM, Ford, an increase in vehicle prices, I think of myself, what does it mean for the big car companies? There are estimates out there from Wall Street that a 25 % tariff across the board for North America, Canada, and Mexico would essentially wipe out all of the profits. Oh. For those three companies. Oh. Yes, across the board without any mitigation that it would wipe out the profits. It's a relatively low margin business compared to tech or kind of things like that.

8:54I mean, we're looking at$56 billion impact on GM Ford and Chrysler's parents, Stellantis. And I mean, like I said, we are talking a lot of money. I mean, if profits go down, if a publicly traded company is not doing well, that typically means headcount reductions. That typically means restructuring. And honestly, the automakers have already kind of been doing that, but it would just accelerate the process that much more. Okay, so this is really an existential moment for American auto manufacturers. We've been talking about the old school guys, Ford and Chevy and etc. What about Elon Musk and Tesla?

9:31Elon is very close to the president. He's been rampaging through Washington. What could this mean for his company? His company is actually, they produce some of the most American-made vehicles in the U.S. Oh. Yes, they have typically been kind of at the top, if not near the top, of where all their components are coming from and where everything kind of is being built and installed into the vehicle because all of their vehicles that they sell in the U.S. are produced in the U.S. Having said that, tariffs have impacted Tesla prior. Canada last year put a 100 % tariff on China-made EVs. Tesla had been importing a notable number of its vehicles from China to Canada.

10:18That's to kind of address some of the overcapacity they had in China. And regarding, I mean, the tariffs in general, Tesla stock was down 5 % when we're talking about yesterday. And I mean, that knocked$11.8 billion off of Musk's net worth, according to Forbes. So he's actually, Elon, has been relatively quiet regarding the most recent round of tariffs and kind of the implications of them. But it is obviously impacting him and it will impact him when the company is producing the vehicles and the cost would increase. So we don't quite know. Nobody quite knows exactly why President Trump is making decisions or changing the decisions that he's made.

11:02But based on everything you've said, these tariffs do have the potential to really hurt the American automotive industry. Yeah, and let's put it this way. I mean, he initiated these tariffs to address drugs such as fentanyl and illegal immigration in the U.S., and that's kind of what he's pinned this on, to be able to do the executive order where he doesn't need Congress approval to implement these tariffs. and he doesn't necessarily have to renegotiate USMCA, which was his trade deal during his first administration term, just yet. But everyone who I've been speaking with still believes that this is a negotiating tactic and they're not sure where we're going to land just yet.

11:46But yeah, I saw a note this morning from a Wall Street analyst that said, tariffs on North American goods is not good for anyone. It will have a ripple effect on the companies. It will have a ripple effect on suppliers. It will have a ripple effect on the consumer. And one thing we didn't address specifically is suppliers. Some of these suppliers are very, very small, and they can't support that 25 % tariff. And if that were to happen and they go out of business, one kink in the supply chain, one little problem can cause big problems for the U.S. auto industry.

12:28Mike Whalen covers the global auto industry for CNBC, and we reached him in Detroit. Mike, thanks so much. We appreciate it. Thank you for having me on.

12:58This is Today Explained. I'm Noelle King with Haley Byrd-Wilt. She's a congressional reporter for Notice, which is a nonprofit news publication. Haley recently published a profile of Peter Navarro. He's a senior counselor on trade and manufacturing to President Trump. And Haley says that he's the key to understanding the tariff man's tariff plans. They really align on trade policy, being skeptical of trade with most nations. And he was often on Capitol Hill during Trump's first term, meeting with members who were begging for exemptions for companies in their districts as they were facing higher prices from tariffs under Trump's first trade wars with China, but also with Canada and Mexico.

13:42Navarro is kind of an immovable force. I remember talking to lawmakers after those meetings who were just frustrated that their points were not getting through to him. He is just very set in his ways. He really thinks tariffs are good. And he's arguably more powerful now than he was in Trump's first administration. You know, a lot of the counterweights, the staffers and the officials who would question him back then are not here. So he is in part driving the tariff man's tariff plans this time around. A movable force is a good way of putting it. I remember him very well from Trump's first administration.

14:19Where did Peter Navarro come from? Well, he was a Democrat for a long time. He grew up in Maryland and sort of around the country, but he ended up in California in his adult life. He was an economist at a college out there, a university out there. He was very interested in politics. He started getting involved in politics decades ago. He ran several times for mayor of San Diego, saying he was an environmentalist who wanted to tax the rich. Peter is brash. Peter is a populist. Burst onto the scene as a leader of the slow growth, pull up the drawbridge movement to keep people from moving to San Diego, to keep new houses from being built.

15:03He ran for a U.S. House seat as a Democrat. He spoke at the Democratic National Convention supporting Clinton. On the environment, President Clinton strongly believes, as I do, that we must mend our environmental regulations, not end them. These campaigns were kind of characterized by the zany figure that we know today. For one instance, he swam a mile to a waterfront restaurant where one of his campaign debates was happening, toweled off, and then started debating. It was just kind of a stunt that he pulled. I've heard he's very into exercise, so that was one way of demonstrating it. But he was a Democrat.

15:45What happened? How does this guy go from speaking at the DNC to being Donald Trump's trade advisor? So for Navarro, it was very much a turning point after China entered the World Trade Organization. And it kind of radicalized him to see a lot of jobs leaving, a lot of manufacturing going to China, to see America's consumption habits completely change after that. He sees this as companies shipping off American jobs to other countries, which is rhetoric you hear from Donald Trump a lot. So they really have been in alignment on this for a long time. Navarro wrote two books around that time. One of them was called The Coming China Wars, and the second one was called Death by China.

16:31Death by China, I believe, is the one that was turned into a documentary that Trump later saw. The film you're about to see addresses one of the most urgent problems facing America. It's increasingly destructive trade relationship with a rapidly rising China. All right. So Donald Trump gets a crack at all of this in his first term. We do put tariffs on China and some other nations. And, you know, it's it's a mixed bag. And I would say mixed because we had a trade war, but also we did elect Donald Trump again. Where does Peter Navarro go in the years after Donald Trump lost the election in 2020?

17:11So after he lost the election, Peter Navarro worked very hard to keep Donald Trump in office. Oh, yes. That is how he spent some of his time. He was trying to overturn the election results. He is involved in the kind of stop the steal effort. He's he's I mean, Donald Trump sees this man as a close advisor. I talked to Steve Bannon, who was a former Trump advisor and who says he's a close friend of Peter Navarro. He remembered Trump often saying, where's my Peter, in reference to Peter Navarro, to call him in to talk to him. But Navarro really proved his loyalty to Trump in this. The January 6th investigative committee wanted to see, you know, they wanted to interview him.

17:57They wanted to see communications about this. And Navarro would not budge at all. He claimed all of it was covered by executive privilege. And he was charged with contempt of Congress. He was convicted of it as well. He spent four months in a correctional facility in Miami last year. Four months in prison. And then after he gets out of prison, does he run back to Capitol Hill? What happened? He went straight to the RNC the same day he spoke at the RNC in support of Donald Trump. If they can come for me, if they can come for Donald Trump, be careful, they will come for you. So he and Trump are firmly allied again.

18:44And, you know, one thing about Donald Trump's first term, the trade war, the tariffs got a lot of pushback. There was a lot of debate over whether they were hurting American farmers, American manufacturers. A lot of people did a lot of math. This time around, do you think Peter Navarro's attempt to push tariffs, particularly it sounds like on China, is going to get the same kind of pushback? And I will note that as we speak, the United States has placed tariffs on China. China has placed tariffs on us in return. I really think he has a lot more support within Congress this time around, especially if they're not doing tariffs on Canada and Mexico.

19:24Lawmakers broadly agree that China's trade practices are sketchy at best. Of course, there's like a genocide designation related to mistreatment of ethnic groups in Xinjiang. So members of Congress are well aware of China's trade practices. So if this is the outcome of the current trade war, I do not expect to see much pushback. And that is really a through line of the profile I wrote is even talking to members about Canada and Mexico and tariffs that would really hurt companies in their districts. Republicans were sort of in it for the long haul. They see they see Navarro's long term vision here of wanting to rebuild manufacturing to make America less dependent on other countries.

20:12And even if it causes pain in the short term or even the long term, a lot of members were saying they're willing to stick with it. One of them simply said, you know, you know, Trump was elected and he talked about this on the campaign trail. Yeah, that's always going to be the dynamic here would be my guess. Peter Navarro, a man who was not elected, has some very interesting and possibly even extreme ideas about what the United States should do in terms of tariffs. And Donald Trump, for the moment anyway, still answers to the American people, right? Donald Trump was the one that America elected, you know, to make things cheaper, actually, was what we are hearing in most polling.

20:50So let's say that Peter Navarro has a real desire here, and that is to see a United States that is more independent of some of these globalized supply chains. Does Donald Trump actually go for it, do you think? It's a very difficult proposition. What you were saying is very true. The political dynamic makes it difficult for Donald Trump to do a lot of these ideas and to actually commit to them. It's a lot easier to declare victory and to do some phone calls with the leaders of these nations and to kick the can down the road than to force a total upheaval of America's manufacturing processes and supply chains.

21:33When you talk to members of the Trump administration, both in the first administration and in this one, it's easy to see this disconnect. Like Navarro is very clear on what he wants. Trump sometimes shares the same views. And even in the same tweet, he will say, you know, we need if they just start making everything in America, like you don't have to pay the tariff like like that's what Navarro wants. But Trump will be like, but also like Canada could become a state. And like, also, if they just accept my negotiating demands on, you know, border security and drugs that are coming across the border, like then we'll stop doing it.

22:08So it's this question of like, is it a negotiating tool or is it something to totally upend the American economy and to make it look a lot more like what Peter Navarro wants? And as long as there's that disconnect, it's hard to see really like a successful push for reshaping American manufacturing. Haley Bird-Wilt covers Congress for Notice. Haley, thanks so much for taking the time. Thank you.

22:44Victoria Chamberlain and Miles Bryan produced today's show. Jolie Myers is our editor. Andrea Christensdottir and Patrick Boyd engineered. Fact-checkers Laura Bullard and Peter Balanon-Rosen were creeping.gif. I'm Noelle King. It's Today Explained.

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