Trump's threats to GM could end up backfiring spectacularly

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President Donald Trump

  • General Motors announced a round of layoffs and plant closures on Monday.
  • President Donald Trump is not happy with that decision.
  • Trump's policies weren't the main reason for GM's move, but they probably helped push the automaker toward the decision.
  • Trump's proposed responses to GM's decision - cutting subsidies and imposing auto tariffs - would likely make things worse.

President Donald Trump's latest threats to get back at General Motors could end up doing the exact opposite of what he wants.

In the days since GM announced it would lay off roughly 15,000 workers and idle four factories in North America, Trump has attempted to bully and badger the US automaker into sticking around. But the president's tactics are only going to make GM, and other companies like it, more likely to get out.Advertisement

Trump probably helped make GM's call easier

Trump's policy goals may have helped contribute to GM's decision to lay off 15% of its salaried workforce and shutter the plants.

Neil Dutta, head of US economics at Renaissance Macro, laid out the reasons:

  • "Trump wants to boost auto manufacturing. He wants low gas prices," Dutta, Renaissance's head of US economics, said in an email Tuesday.
  • "He has seen relative low gas prices through most of his tenure (even lower now)."
  • "That has slowly made cars like the Volt and Cruze pointless to buy. Auto manufacturing gets hurt."
Additionally, Trump's tariffs on steel and aluminum helped drive up GM's costs by $1 billion this year. While the ultimate decision to close the plants appears to be more related to the industry trends and consumer demands, experts told Business Insider that the tariffs likely accelerated GM's timeframe.

In response, Trump could try to make it more economically viable for GM to continue to produce cars or other vehicles in the US to stem the layoffs and prevent further losses But instead, the president is threatening to do the exact opposite.

Subsidy cut, tariff threats would backfire

Trump has floated two ideas to punish GM and encourage more US auto production: cutting subsidies and adding auto tariffs. Economists say both would backfire:
  • Trump said his administration is "looking at cutting all GM subsidies, including for electric cars."
  • He said Wednesday that GM's decision has prompted him to think about imposing tariffs on imported cars, trucks, and auto parts.
It's unclear exactly what subsidies Trump was referring to in his tweet, but most think he was talking about the electric vehicle tax credit, which gives a $7,000 break to anyone who buys an electric vehicle.Advertisement

As Business Insider's Matthew Debord pointed out, the threat to cut the electric vehicle credit is essentially meaningless to GM, since the credit is already set to expire within the next two years.

But if Trump scraps the subsidy for all manufacturers to spite GM or increase overall production, this would cause electric cars from other companies to become more expensive - and likely end up hurting auto manufacturing in the US.

"He wants to cut electric car subsidies, [auto manufacturing] gets hurt even more," Dutta said. "It's the classic Trump thing of policies he supports working against goals he also supports."Advertisement

Read more: Trump's threat to impose a 'chicken tax' on cars could cause a major mess for the US economy»

The other idea, higher auto tariffs, would also likely end up backfiring. Studies have shown that Trump's idea of a 25% tariff on all cars, trucks, and auto parts coming into the US would result in a net loss of US jobs, lower car production in the US, offshoring of car manufacturing, and a substantial hit to the US economy.