Trump's 25% Tariffs on Cars / The Rest of the Houthi Signal Chat
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Meantime, the public gets more information on the security lapse from that signal chat previewing U.S. military strikes on the Houthis in Yemen. Welcome, I'm Kyle Peterson with The Wall Street Journal. We're joined today by my colleagues, columnists Alicia Finley and Kim Strassel. Another shot fired in Donald Trump's trade wars, including against Canada on Wednesday.

when the president issued a proclamation imposing 25% tariffs on imported automobiles, citing national security grounds. Here's a clip of the tariff man himself signing this executive action Wednesday in the White House. And this is very modest. What we're going to be doing is a 25% tariff on all cars that are not made in the United States. If they're made in the United States, there's absolutely no tariff.

We started off with a 2.5% base, which is what we were at, and we go to 25%.

And basically, as you know, and as you've been saying, not reporting as accurately as it should be reported because it's a massive story. Business is coming back to the United States so that they don't have to pay tariffs. And I think also because of November 5th, the election, they're very happy. And here on Friday is the prime minister of Canada, Mark Carney, saying that his country will fight back against the U.S. here. I understand that.

I understand and respect his goal to support American workers, but I disagree with him that this is how to help. With time, it will become apparent that these actions will end up hurting American workers and American consumers. I reject.

any attempts to weaken Canada, to wear us down, to break us so that America can own us. That will never happen. And our response to these latest tariffs is to fight, is to protect, and to build.

Alicia, what are the details of this very modest, as the president puts it, 25% tariff on imported automobiles and the expected effects on the economy and potentially consumers? Well, so the way that this is framed to work is that 25% across the board on all countries, so it doesn't matter that the U.S. has trade agreements with...

Mexico and Canada that puts the tariff now at zero nor South Korea, which is also a major importer of cars. It effectively blows up those trade agreements and places a 25 percent tariff. And by the way, just to know, we do currently have a 25 percent tariff on trucks, but not the sedans. And so most of our trucks because of that tariff are actually pickup trucks and SUVs are actually made in the U.S.,

But most of the lower cost sedans are made in Mexico or South Korea or Japan. So we import a lot of Toyotas, Hondas, and even the so-called big three, which I'm alluding to is GM, Ford, and Stellantis, big three.

They make a lot of their really low cost entry level passenger cars in Mexico and some compact SUVs. And these are cars that typically cost $20,000 to $30,000. And that just simply wouldn't be economic to make in the U.S. because of the much higher labor costs.

And by the way, there are also increasing energy and other operating costs in the US. But what will happen is there's a lot of uncertainty, first of all. Right now, it exempts parts from Mexico and Canada. That is a very temporary exemption because they're supposedly trying to figure out exactly the components because they want to exempt the share of the US value in a car that is imported and similarly within parts. So this gets inordinately complicated.

hence for a temporary exemption, at least on the parts. Now, what will the effect be? I think a lot of people are economists, analysts. The companies themselves are trying to figure that out. A lot of the dealers already have two to three months worth of supplies, so you probably won't see prices rise overnight. The price increases probably won't be across the board. They may not be $25.

percent total. I imagine the automakers are going to have to eat some of it and you'll see some compressed margins. But you may actually see some cars or trucks that were made in the U.S. price increase on them because the automakers may figure, well, demand for this kind of truck is very high. It's relatively inelastic, to use economist lingo. And so I think we can increase the price on it more than we could a lower cost sedan.

But I think the overall expectation is that prices would increase between $5,000, $10,000 on average per car in the U.S., which is a quite hefty tax increase. Kim, one of the lessons from this move by Trump is that it turns out the president actually likes tariffs. He believes in tariffs. And we've been making that case for a while, pointing to remarks

by the president, including on the campaign trail, lauding President McKinley, saying that tariffs make the U.S. rich. But there still had been, even recently, arguments floating around that, well, this is really actually about negotiation. He is trying to get some sort of deal on fentanyl. He is trying to get other countries to lower their tariffs on U.S. exports.

And to some degree, I understand why people thought that, because Trump often says those kinds of things. But it does seem like he actually also believes in tariffs as an economic matter. And he thinks if the U.S. builds big walls that are making it expensive to bring imports into the United States, that that will be great economics and good for U.S. jobs. Honestly, I think he

changes his mind based on who was last in the room and last talking to him. And what it sounds like in the last month in particular is that the voices within his administration that themselves love tariffs in their own right have been winning more of that argument with him. I truly believe that Trump does have and certainly has believed in the past that the real purpose of

of tariff threats is to try to end up in a situation where tariffs are reduced for all. And I've heard him speak really well on that subject in the past. I still remember it never really came to anything. But when Britain was going through Brexit, there was all this talk about how maybe for the first time ever, the United States could negotiate a bilateral trade deal with Britain and

but had zero subsidies and zero trade, and it was truly the definition of free trade. So the president certainly understands that concept and has expressed support for it in the past. Unfortunately, I think that there are a number of people in his administration that

believe that this stick of tariffs is instead a way to revive American manufacturing and have everything made in the United States. As Alicia said, there are certain products that are largely produced here, for instance, pickup trucks and SUVs.

But getting there for lower cost vehicles, I do not think that the White House is taking into consideration the difficulties of making that happen, the hundreds of billions of dollars of investment, the time that will be necessary, but also the simple reality that when you do that,

You might be making more things in America, but it will come at real cost to consumers. Because when we talk about, Alicia mentioned labor costs in Mexico, in particular for lower value vehicles, entry level vehicles.

If we're going to build them here, we talk about labor prices in the United States. Sure, we all want people to make a good wage. But the union demands in some of these places are for these guys to earn, you know, two to three times what average Americans earn. It's really kind of stunning demands. We saw that in the port workers recently, and they use all of their leverage to get these astonishing numbers. And there's no way that the manufacturers can eat that. So they have to pass those costs on to people.

So you can have these tariffs here now. It's going to raise a lot of costs. But even if you manage to relocate a lot of this production back in the United States, it's also going to result in a lot higher costs, too. So this is why we have trade, because countries have different competitive advantages. And one of Mexico's competitive advantages over us is they have far more reasonable worker wages and energy costs. Hang tight. We'll be right back.

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because Americans lose when politicians choose. Learn more at GuardYourCard.com. Welcome back. Alicia, the president is using a law called Section 232 to impose these tariffs, and that requires a report making the case that there's a national security threat here. Notable that the report the president is citing is one drawn up by the Commerce Department

In his last administration, the Trump administration, the first go-round, did not release it. The Biden administration then came in and did. And so we have been able to look at that report, though there are some redactions. A couple of notable lines. It says that Mexico, Canada, Japan, South Korea, and the EU account for nearly 98% of automobiles imported into the United States.

And that data is a few years old now. But what do you make of this idea? All of those are allied countries very closely in some cases, Canada, Japan. What do you make of the idea that the president is saying that this is a threat to national security? Well, I don't think he even takes this seriously. Right. I think this is entirely pretextual.

The 2019 report that you cited makes the kind of a strained argument that imports threaten national security by undermining the U.S. defense industrial base and research and development into military technologies.

which is a little weird. Yes, our GM Ford and I guess Stellantis, which actually isn't technically a U.S. company anymore, they do R&D and they do produce most of their cars in the U.S., but it's not as if the government's going to need to take over the factories or will take over the factories, I love World War II, to start building more tanks or such for the military, which is

seem to be part of the illusion of the report. And also, they do not do the vast majority of R&D in this country, let alone for military purposes. It was also a strange report in that it seemed to be saying we need to protect U.S. own

companies, even though there are a lot of foreign-owned plants in the U.S., by the way. Some of this seems to be reflecting a bias against foreign ownership and foreign companies in general, similar to President Trump's and previously Biden's opposition to the Nippon Steel takeover of U.S. Steel. But going back to, well, what is this report? I think this is just

intended to provide the justification for the tariffs. They were searching around for legal justification. They still are for some other tariffs, including on pharmaceuticals and semiconductors. But this is an easy one that they could just pull off the shelf in sight. And I thought one other irony is they said that, well, the COVID supply chain hiccups reaffirmed that we need to ensure all this manufacturing to the U.S. Well, I

Actually, what happened there, the reason why there was actually not enough cars being produced in 2021 was because there was a shortage of chips. And that wasn't actually because they were being produced in Taiwan. That was just because there was an enormous demand for chips for computers and such. And automakers really last in line because they paid less and these were older chips.

So that, again, is another indication that this is an entirely pretextual basis to impose these tariffs. On the point about higher prices, another notable line from this report making the argument that this is a national security threat. The Commerce Department is basically arguing that higher prices would be good for the United States.

It says that it's bad that imports, quote, have prevented American-owned automobile producers from increasing sales prices, unquote. And Kim, the argument there is that if U.S. automakers could raise their prices, they would have more money to invest in R&D, new technologies, EVs, green cars, you know, the next wave of automotive stuff that could be repurposed for military hardware in the event of a real conflict.

But, Kim, I mean, I guess that raises the question of whether there's any sort of legal case against this. The courts are generally skeptical of second guessing the president of the United States when he says there is a national security threat. But at the very least, in my mind, it raises questions of whether probably not going to happen under this administration. But future Congress should go back and look at some of these laws and really reconsider how much power over trade exists.

The Article 1 branch has delegated to the White House. Well, first of all, on that report, you know, if wishes were horses, I mean, it's such fanciful thinking. Yes, it would be lovely. I'm sure it'd be amazing if all these car companies could just charge $300,000 a car and then take all that money and make new, even more amazing cars that they sold for $500,000 a car. But guess what? Usually when consumers are presented with higher prices, what they do is just not buy new things that they can't afford.

And they'll probably figure out a way to make sure that that old Toyota just goes into the auto mechanic and gets patched up a few more times rather than being able to go out and buy a new car. So it's sort of, again, wishful, fanciful thinking designed to make this report hang together in ways that it obviously does not.

And of course, Congress needs to go back and look at some of these laws. And they need to reevaluate as well to the power that they have given away. And this has been a long-term problem that Congress faces. I still remember former Senator Ben Sasse when President Trump declared an emergency at the border in his first term.

standing up and saying, you know, I don't particularly like seeing the president exercise this power. But guess what, people? We in Congress, I'm finding it very hard to argue that we didn't, in fact, give him the power to do that. It used to be a power we had, and we didn't want to be bothered with it. So we handed it over. And this is a perennial problem with Congress, is it doesn't always want to do the work.

And it has abdicated on many levels. So I think the harder question in that is this ought to be something that could get some real bipartisan support. If you just simply step back and look at issues of separation of powers, usually institutions can find that common ground and say, we're taking this power back.

Unfortunately, what we've found is that partisanship plays a role. So often if there's a Republican president in charge, Republicans don't want to take that power back from the Republican president. If there's a Democratic president in charge, vice versa for Democrats.

Sometime, though, that I think we need to reach that 60-vote filibuster threshold and have Congress rethink some of these big issues. But to underline the magnitude of the change here that is being implemented by executive action, there's one analysis that says the U.S. average tariff rate in 2024 was about 2.5%. With the auto tariffs, with the steel, aluminum tariffs, that has now been pushed up to about 8.5%, the highest tariff.

in 75 years. And Alicia, next week, we are promised also President Trump's plan for reciprocal tariffs, which could push those numbers even higher. And it's going to be a fascinating experiment, I guess. One of the disadvantages of economics over some of the hard sciences is

It's hard to go into an economy and turn the knobs and see what happens, but it looks like that is almost what's going on right now. Well, I think he very much wants to do that. It's like a little kid who pushes buttons and wants to see what happens. There's a stock market reaction and the Dow Jones tanks a couple thousand points. Maybe he'll pull back.

Next weekend, he is teeing up what he calls Liberation Day or the big one in which he will announce the reciprocal tariffs. And the way this was initially framed was if, let's say, India imposes a 20 percent tax on U.S. motorcycles, then the U.S. would impose a 20 percent tax on Indian motorcycles. That's not what they're doing. They've already said that we'll

we're going to have a flat rate per country. Initially, Trump said that we're only going to hit a dirty 15. So the 15 countries in which the U.S. has the biggest trade deficits. But now they're saying, no, we're going to hit all countries and

And we're going to impose a tariff rate. And it's still not clear. They say the intent is to try to force other countries to reduce their tariff and other trade barriers. But to your point earlier, the U.S. actually has a higher now average tariff rate. Right now, it's around 2.7 percent than Europe and most other countries have.

Mexico's are also around 2.7%. Other countries have non-tariff barriers. In fact, Europe restricts or limits the importation of food that is genetically modified. The U.S. has all kinds of labeling requirements and restrictions that also keep out foreign goods.

And so the question is, is the Trump administration really trying to reduce foreign tariffs, which are in many of our allies as low as they are in the U.S.? Or is it just trying to erect higher tariff and trade walls to protect the U.S. industries from foreign competition? I think the evidence is increasingly pointing to the latter. Hang tight. We'll be right back after one more break.

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See if you qualify at oracle.com slash wallstreet. Oracle.com slash wallstreet. Don't forget, you can reach the latest episode of Potomac Watch anytime. Just ask your smart speaker. Play the Opinion Potomac Watch podcast. From the opinion pages of The Wall Street Journal, this is Potomac Watch.

Welcome back. Let's save a few minutes for the unfolding story of this signal chat on Houthi strikes by U.S. officials. On a podcast earlier, we discussed this and mentioned that President Trump's special envoy, Steve Witkoff, was in Moscow while this was all unfolding.

Mr. Witkoff has since clarified that he did not take his personal phone with him where this chat was being sent to Russia with him. And I guess I'm glad to hear that. On the other hand, Kim, that still is a personal iPhone or Android phone. I guess I don't know the model of a U.S. official with highly sensitive information being sent to it. And adversaries can get into those kinds of personal devices online.

And Kim, you were out when we took this subject up earlier this week. So we'll give you a moment to get your licks in on this story. Look, I think there are a lot of questions. Congress

And Washington is currently having a big debate about whether or not the information that was shared was in any way classified. Interestingly, the Attorney General, Pam Bondi, came out and said it was her view that it was not classified. And as a result, there's not going to be an investigation into this or presumably any charges, for instance. I think that that

is one thing, although it completely sidesteps the question of whether or not, which I think everyone can agree, that there was certainly sensitive information on there of a nature that could have compromised this mission had it been obtained by anyone else. That's really the bottom line. But then what's become fascinating is there are a lot of other discussions about simply the decision to be having put aside

the mistake of adding a journalist and put aside even the question of using a commercial app on a private cell phone. Those are process questions. But also, why was there such a huge number of people clued in on this? Did everybody, in fact, need to be privy to this information that was flying around? And it brings up some very serious questions of protocol,

How things are done. You know, I wrote this week, the bigger problem, I mean, a problem that is as large as the security risks of all of this is just there's a certain junior varsity feel to the whole thing as well. I mean, you want to, when you hear the words Secretary of Defense,

and Secretary of State conjure to mind skiffs where you go in to get classified information and special phones and Faraday bags that protect things from spying. And instead, we've got group chat on Signal. It just didn't feel like a kind of... It lacked a certain level of seriousness. So there was a lot of mistakes made here. And I think it's unfortunate that the administration doesn't just acknowledge that there were errors made,

lay out why that's never going to happen again and move on instead of yelling fake news all the time and in the process managing to keep this at the top of all of the headlines. That is also part of what strikes me here is this botched effort, I guess I would say, crisis PR management, because if they had just acknowledged that

Remember, Jeffrey Goldberg, the Atlantic reporter who was on this chain, did not publish the full text chain initially. He said he was withholding the most sensitive material. And if they had just acknowledged at that point that something had gone wrong, that's probably where it would have lain.

But by continuing to deny that anything had gone on, they kept saying there were no war plans shared, seemingly making some semantic distinction between war plans and battle plans, operational plans. They probably would have shortened the length of the story. But Alicia, what then happened is on Wednesday,

Jeffrey Goldberg published more information, including messages sent to this text chain, such as 1215 Eastern Time F-18s launch, first strike package, 1536 F-18 second strike starts, also first sea base Tomahawks launched. And remember, this is a chain that is happening before those strikes were supposed to take place. Alicia, I agree. It seems to me that we...

They did not hear the end of the story in part because of how the Trump administration responded to it. Now there's calls for an inspector general investigation. And so maybe even after this week, we have not heard the end of this signal business. Right. And I would expect even after the end of this year or two years, if Democrats take control of Congress or the House next year, it's midterm elections.

I think they're very likely to do an investigation of what happened. And don't be surprised if there are some more calls for impeachment of Donald Trump's cabinet members, including Pete Hegseth, if he isn't gone before then for one reason or another. I mean, I do think that this showed really bad judgment.

To Kim's point and your point, they shouldn't have been doing this, discussing in such a cavalier way on essentially a public app. I know it's encrypted, but Chinese, Russians, other adversaries have ways that they could have intercepted these communications. And I think, again, it does deserve to be investigated, but they should have just said yes or made a mea culpa, said, "Yes, we made a mistake.

We will not do it again. And sorry. Thank you, Alicia and Kim. Thank you all for listening. You can email us at pwpodcast at wsj.com. If you like the show, please hit that subscribe button. And we'll be back next week with another edition of Potomac Watch.

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