What happens to small foreign car manufacturers if a border tax is passed?

"Mercedes Streeter" (smart) 01/26/2017 at 13:18 • Filed to: border tax

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I desperately need an explanation of this one, and let’s try to keep it apolitical please.

So, in an unprecedented way, Trump is being a man of his word. A lot of times, Presidents make promises on the campaign trail then drop them once they get office, but he’s different. Trump has signed a rather large amount of Executive Orders that fulfill many of the campaign promises and many more are definitely along the way. Based on this, we now have no reason to expect him to drop the border tax idea.

With that, what will happen to small manufacturers? The current proposals suggest the border tax would be 45% on goods from China, 35% from Mexico, and 10% or so depending on country. For many small automakers, I can imagine this being just enough motivation to pull out of the US market.

Some manufacturers, like smart, don’t pull in enough sales to even make a 10% tax increase worthwhile. At that point, Mercedes-Benz would have 0 motivation to continue distributing cars here.

Am I right about this? Or are there elements that I’m missing?

Also, what would his promise of 75% regulation cuts do for the quality/safety of American built vehicles?

Bytemite > Mercedes Streeter 01/26/2017 at 13:24

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Isn’t the border tax for the cars manufactured outside U.S? If they have factories in the U.S, maybe it doesn’t affect them.

As for safety through regulation, I was never a fan personally. Can’t people just option in the extra airbags and safety features and build a much cheaper, different model or trim for the people who don’t want 5-star crash safety rating?

Bman76 (hates WS6 hoods, is on his phone and has 4 burners now) > Bytemite 01/26/2017 at 13:27

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Safety through regulation is the only way.

Xyl0c41n3 > Bytemite 01/26/2017 at 13:29

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Still think seatbelts are pointless, huh? Have you never been in a crash, byte?

Mercedes Streeter > Bytemite 01/26/2017 at 13:31

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Yep! It’s for any product not manufactured in the US. Man, dollar stores are sure in trouble. From the looks of it, if a company imports any product from another country, even if they have a factory here they will still be taxed on the imported product.

And sadly no, car safety caters to the lowest common denominator. If you make safety features an option, most people just won’t buy them to save money, and crashes, deaths, and injuries will ultimately go up.

Bytemite > Bman76 (hates WS6 hoods, is on his phone and has 4 burners now) 01/26/2017 at 13:32

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Could you elaborate on that? If the market chooses to buy the cars that have more safety, regulation isn’t required to keep the people who want to be safe, safe. And for people who want to buy less passively safe vehicles that offer better mpg, vehicle dynamics, performance and so on, also get the choice to. I’m not seeing what the problem is.

shop-teacher > Mercedes Streeter 01/26/2017 at 13:34

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A tariff is simply a tax on the item. Lets say all cars built in Europe were to get a 20% tariff slapped on them. That car now costs anybody in the US who wants to buy it 20% more. Which, obviously, means a lot less people will be willing to buy them ... or in the case of Smart, just you and a few other loonies :p

Bman76 (hates WS6 hoods, is on his phone and has 4 burners now) > Bytemite 01/26/2017 at 13:35

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Because you ultimately are just making less well off people more vulnerable to injury.

Bytemite > Xyl0c41n3 01/26/2017 at 13:35

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Never have been in a crash, nope. But I am aware my preferences are the minority, and not representative of popular opinion. I just don’t want a car that keeps me safe by adding 500 lbs. Without those 500 lbs, maybe the car would’ve had better emergency handling characteristics that allow for a safer maneuver to avoid an accident in the first place.

haveacarortwoorthree2 > Mercedes Streeter 01/26/2017 at 13:38

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Are you saying “Dollar and a Half Stores” don’t have the same ring?

Mercedes Streeter > shop-teacher 01/26/2017 at 13:41

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I think Mercedes-Benz would stop selling smart here if that happened, they’d be prohibitively expensive and sales would free fall. Besides, I don’t even think we’re needed by MBZ anymore.

Chan - Mid-engine with cabin fever > Bman76 (hates WS6 hoods, is on his phone and has 4 burners now) 01/26/2017 at 13:42

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And then they band together and sue an automaker for something like false advertising. Insurance costs will skyrocket.

Compliance to a holistic set of safety regs is the cleanest way to advance automotive safety.

Also, automakers have always found ways to decrease production costs. Feature for feature and size for size, cars are cheaper than 20 years ago.

Xyl0c41n3 > Bytemite 01/26/2017 at 13:43

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Um. You realize there are quite literally decades of data on both real world and lab-controlled crashes, as well as tens of thousands of man hours which have been spent on engineering and design, all of which is still on-going, that proves that cars with seatbelts, airbags and crumple zones are safer for their human occupants than hunks of steel without such features?

When you’re going 70mph on a freeway and a drunk comes out of nowhere, that “500 pounds” (do a dozen airbags and 4-6 seat belts even weigh that much?) of “extra” weight which are impeding your hidden talents as an F1 driver really aren’t going to make a difference in your car’s handling. Especially if your tires are worn, or your brakes need changing, or it’s raining out, or what have you. But you know what will make a difference? The airbag that keeps your steering wheel from crushing your rib cage against your spine, the seat belt that keeps you from ejecting out the windshield, and the cabin crumple zone that keeps your legs from being battered to the consistency of a very bloody porridge.

Bman76 (hates WS6 hoods, is on his phone and has 4 burners now) > Chan - Mid-engine with cabin fever 01/26/2017 at 13:43

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Making them options would increase the costs due to lower production numbers.

Bytemite > Mercedes Streeter 01/26/2017 at 13:46

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I see your point on safety regs. Poor Dollar Tree though, I will always remember those toy soldiers. I think there might be a positive to this though if these taxes deter fast fashion apparel companies from abusing cheap, and sometimes child labor with terrible conditions in other countries. But then I have also heard the argument that those places actually need those jobs? So I’ll have to learn more about that.

Mercedes Streeter > Bytemite 01/26/2017 at 13:48

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I’ve seen some interesting defenses of child labour and abusive labour practices. Generally the argument is “well they have a different culture than we do, so it’s okay”. Well, is it really? A human is a human no matter where they live, and they shouldn’t be treated like a slave.

RutRut > Bytemite 01/26/2017 at 13:50

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You understand and support a free market. It’s not a problem but a lot of people will disagree with you.

RutRut > Mercedes Streeter 01/26/2017 at 13:51

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It’s almost entirely unknown, for all we know a provision could be placed based on volume for vehicles similar to low volume vehicles not being required to meet certain EPA standards.

Bytemite > Xyl0c41n3 01/26/2017 at 13:55

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I understand there are accidents that are completely out of my control. And yeah, I’m sure people are safer from passive-safety features. I just wish I had a choice to buy a new car without those, that’s all. I don’t really care about crushed ribs, and being ejected out the windshield, and having my legs battered. That’s all a very small, tiny possibility. We all live our lives happily, going through all sorts of statistics of injury, and maybe even death. I look at things through probability, not possibility. If I reversed those, I would’ve chosen to be an insurance underwriter. In short, I can try to live my life in a bubble, or just enjoy the time I have in this world. If it is cut short, so be it. Maybe it was meant to be, to live free and die, as dumb as it may sound.

Xyl0c41n3 > Bytemite 01/26/2017 at 14:00

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Dying a ridiculously preventable death is just flat out stupid, Byte. I don’t ascribe to social Darwinism. As such, I don’t think you should die because, for whatever misguided reason, you’d rather drive a car that is purposely made a death machine.

shop-teacher > Mercedes Streeter 01/26/2017 at 14:03

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Yeah, I think that’s definitely the case.

Bytemite > Mercedes Streeter 01/26/2017 at 14:04

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Very true, there shouldn’t be any excuse. A multinational company like Zara should be able to pay their employees much more than the local minimum wage and extend much of the culture and protection that their first world country employees enjoy. Maybe then, they can lead that area in employee satisfaction and urge local employers to change their conditions, or at least make them aware of what a good workplace looks like.

Textured Soy Protein > Mercedes Streeter 01/26/2017 at 14:08

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Presidents cannot levy taxes or tariffs by executive order.

It is extremely unlikely that a Republican Congress will unite to pass sweeping tariffs on international trade just because Tiny Hands Donny says so.

Aaron M - MasoFiST > Mercedes Streeter 01/26/2017 at 14:11

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The best example comes from looking at pre-existing tariffs that are similar. The only real comparable one is the Chicken Tax, which was levied on small trucks. The market shriveled and eventually died, because the imports who actually made small trucks couldn’t make a profit doing so, and the domestics who had no competition shifted their funds towards improving the models that did have to be competitive.

The two things that are likely are:

-All cars will become more expensive due to the heavily globalized supply chain, possibly a lot more expensive

-Import-only models will slowly cease to exist. To a degree this has already happened due to currency issues; Toyota’s biggest made-only-in-Japan import models were dead by the mid-2000s (Celica, MR2, etc.), with the exception of the Prius. Other than the Prius the only one left is the 86/BRZ, which will almost certainly get canned. If an import-only model (like the Prius) is successful enough to warrant its continuation, the companies will find a loophole in the law or blackmail the government for an exception by threatening to close plants or (more likely) lay off workers and replace them with machines, which may become more cost-effective when a model like the Prius is on the line.

Bytemite > Xyl0c41n3 01/26/2017 at 14:13

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I guess we will have different views until something traumatic happens in my life and I finally understand you. Until then, thanks for at least hearing me out. I’d just like to point out that this safety thing is all relative to time, location, personal views...20 years ago, we thought cars were safer than ever. In other countries, they think any car is much safer than a scooter.. If we keep going this same direction, what the norm will be is a pod looking vehicle with no glass windows, completely autonomous driving, 24 bags of air that readily inflate when you turn on the car, and deflate when you exit, and whatever else people can think of to make them feel safe. All I’m saying is, safety is relative, and I have my own personal idea of what safe is. I’m not out there driving a Model T, but if I see someone doing that, I don’t think “oh my god that is so unsafe”, I think “wow that’s so cool! You go dude!”. Just different ways of looking at things.

Cé hé sin > Mercedes Streeter 01/26/2017 at 14:25

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“Also, what would his promise of 75% regulation cuts do for the quality/safety of American built vehicles?”

It’s meaningless. 75% of which regulations? Who decides if it’s 75%? Is it proposed that a random three out of every four rules are dropped? Seat belts stay, airbags, abs and collapsible steering columns go?

As for the proposed import duties, depends on how much. AFAIK there’s already a 2.5% duty on imports from some countries so an increase to say 10% won’t make a great deal of difference. Substantial duties will obviously be followed by retaliation. I don’t know if America exports many US designed cars as it’s a high cost maker with car models which wouldn’t sell well in many places, but I know that Merc and BMW export substantial numbers of 4wd/crossover types and substantial duties on these wouldn’t do a great deal for the livelihoods of those US workers building them.

Cé hé sin > Bytemite 01/26/2017 at 14:29

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I’ll tell you a true story about safety equipment.

Some years ago Renault introduced a new version of one of their smaller models, the Megane. It came with, for the time, many airbags. It also came at a higher price than its rivals. Sales suffered, dealers got upset. Result? A new basic model with two airbags. Dealers became happy again as they now had something to sell.

Conclusion: safety doesn’t sell. It has to be legislated for.

My bird IS the word > Mercedes Streeter 01/26/2017 at 14:41

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Lotus is a dead brand then. I hope not, I have intentions of my first big savings to be a caterham. A tax would probably make it unachievable until he left office. Not that four years is a long wait, and I will definetly be saving for longer than that I think even if trump does a fantastic job (for the economy, anyway) there is no way in hell he gets reelected.

Contrary to popular belief, nobody in this country actually wants to do manufacturing jobs. Free trade is good.

bhtooefr > Mercedes Streeter 01/26/2017 at 14:45

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I’ll attack the “75% regulation cuts” part, despite there being a lack of clarity as far as what it actually means. He did say that the people would be protected, though.

A lot of regulation is really meant to either clarify itself, or close loopholes in existing regulation. So, I could see a revamped regulatory text that’s focused largely on being smaller, rather than being effective, having two major effects.

The first of those will be giant loopholes, especially because the rulemaking process involves those that are being regulated, as they’re usually the experts in the field. The text will sound reasonable, but will allow completely ineffective solutions to the problems that the regulation is meant to solve, or will fail to prohibit cheating the system (one huge effect I could see is things like Volkswagen’s diesel cheating, and FCA’s alleged diesel cheating, being fully legal). Just look at the state of European diesel emissions to see the issue here.

The second of those will be unclear regulation, which is open to too much interpretation. This is actually one way to implement protectionism - you give the most lenient interpretation possible to domestic automakers, and the strictest interpretation possible to foreign automakers, as an example.

In addition, I do suspect some standards will be reduced or eliminated. For emissions and fuel consumption, this will almost certainly result in many products reverting to lower technology solutions, or to tunes that maximize power at the expense of efficiency. Efficient products may be harder to buy, although there’ll be some options. If California is allowed to continue regulating their own emissions, the California market will probably have reduced choice due to the further distance between American and Californian cars and their parts.

For safety, however, a standard rollback may not do much. On the low end, it’ll likely result in more dangerous cars being released (although I also feel that there’s a place for vehicles in between motorcycles/bicycles and cars in safety, and also in between bicycles and cars in performance, ala the European L6e light quadricycle (which actually has a US counterpart, the FMVSS 500 Low Speed Vehicle) and L7e heavy quadricycle classes). However, in the entire rest of the market, automakers to this point have shown a tendency to try to perform well in the IIHS crash tests, which are well beyond what they have to comply with by law. There’s a couple reasons for that , the first of which is obvious - consumers in this market do prioritize safety - but the second is because of the IIHS’s interests, and why they exist.

Pardon me, while I go a bit political... but basically, there’s a certain amount of power that must be held by someone, whether that’s a government or a private institution. Anything that’s deemed necessary in a society, and has high costs to provide, is something where someone has power over the people. Automotive insurance is deemed necessary in our society, to the point that 48 (IIRC) out of 50 states mandate that a car or its driver be insured to be legally driven... but no states offer a public option for that insurance, giving that power to private insurance companies. Those companies have a vested interest in reducing their costs, and have formed the Insurance Institute for Highway Safety, which has its own vehicle safety programs well beyond what are required by law, for testing what happens in collisions.

Upshot is, if a vehicle is less safe for its occupants, insurance is more expensive for it - it’s a higher risk to the insurer. This means that cost of ownership is higher. So, improving safety, while it increases the MSRP of the car, can actually reduce the cost of ownership of the car. Admittedly, this is a secondary factor - again, the market prioritizes safety - but it is a factor.

tl;dr: Automakers will almost certainly be able to cheat more, unclear regulations will be used as a way to implement institutional prejudice against foreign automakers, emissions and fuel consumption will likely increase even without cheating, safety will be unaffected except at the bottom of the market where it will be worsened

fennelbreath > Mercedes Streeter 01/26/2017 at 16:13

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I attended a smart event in Brooklyn last fall and the M-B PR team sounded very invested in smart’s future. Granted, they were talking to a bunch of journalists about to drive a new model, and granted, they don’t make the decision whether to sell them or not, but... (I sort of lost my train of thought here...) it sounds like they’re actually doing okay selling smarts as fleet vehicles for urban police departments (code enforcement teams) and car-sharing services. They know it’s a niche (and expensive for what it is) vehicle... for what that’s worth.

ETA: Maybe they’ll do what they do with Sprinters and ship them over in pieces for assembly in a U.S. plant.

Mercedes Streeter > fennelbreath 01/26/2017 at 17:32

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Interestingly enough, Mercedes-Benz is only proactive with smart PR and relations when they have their road show events and auto shows going on.

Internally, they treat smart owners with little to no respect, create “alternative facts” instead of fixing defects (the ongoing fuel tank issue), and generally create an atmosphere that implies that we really aren’t wanted anymore. They’ve gotten rid of almost all of the real smart brand managers and they’ve already phased out their social media connections and remodeled the dealerships not to have a smart center anymore.

The whole dealing with smart USA side of smart’s US operations has been dreadfully gloomy since MB USA took over distribution from PAG.

fennelbreath > Mercedes Streeter 01/26/2017 at 17:39

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That’s interesting. I don’t know anyone IRL who owns a smart, and I hadn’t really heard about this.

xyzabc > Mercedes Streeter 01/28/2017 at 18:02

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