A Trump Tariff on North American Auto Trade Could Kill Jobs, Not Increase Them

Could President Donald Trump's initiative to increase automotive manufacturing in the U.S. actually kill more jobs than it creates?

By raising tariffs as high as 35% in a bid to force production to the U.S. from Mexico and Canada, the U.S. would increase costs, force new investment in plants and dampen sales by General Motors (GM) , Ford (F) and Fiat Chrysler Automobiles  (FCA) .

The CEOs of the three automakers met with the president for breakfast on Tuesday. Afterwards, Trump said he wants to create a regulatory climate that "makes the process simpler for the auto industry." Automakers have complained about federal pollution, fuel efficiency, safety and other rules that are conflicting, costly and ineffective.

For now, vehicle manufacturing and sales are the beneficiaries of free trade within North America, meaning that materials, parts, components and vehicles cross borders without tariff. The arrangement allows automakers and their suppliers to purchase parts and labor as efficiently as possible, thereby keeping the cost of new vehicles as low as possible.

For example: A manufacturer of seats in the U.S. may buy materials in Mexico, assemble the seats in Michigan and then ship the seats to Canada, where they are installed in a pickup truck that ultimately is sold in Mexico. Though the process may look inefficient and expensive -- the materials cross borders four times before a consumer buys the truck -- it is far less costly than being forced (via a punitive tariff) to purchase materials, parts and components in the same country where the vehicle is built and sold.

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