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Economist describes automotive industry ramifications of Trump’s tariff proposals

Wednesday, April 25, 2018 - 07:00
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Professor Dr. Gary Galles has taught economics at Pepperdine University in Malibu, Calif., for more than 30 years. His research focuses on public finance, public choice (described as “the economics of government”), the theory of the firm, the organization of industry and the role of liberty, including the views of many classical liberals (now called libertarians) and America’s founders. His books include Faulty Premises, Faulty PoliciesApostle of Peace and Lines of Liberty.

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In addition to his books and journal contributions, Galles has been involved in numerous economics textbook projects and has published more than 1,000 articles and opinion pieces in publications such as ForbesThe Los Angeles TimesThe Chicago TribuneThe Indianapolis StarThe Detroit Newsand The St. Louis Post-Dispatch. He has also made multiple appearances on television and radio programs. 

A Pepperdine colleague points out that “Galles’ focus is primarily on using economics tools to understand ‘the real world’ rather than creating theoretically elegant but misleading models divorced from it.”

Galles answered a series of questions posed recently by Aftermarket Business Worldrelating to the initial rollout stages of President Donald Trump’s tariff proposals:

Q: Assuming Trump is ultimately able to enact his announced steel and aluminum tariffs, how would this impact American automakers and American auto parts producers?

A: It would make cars assembled in the U.S. more costly than assembly in Mexico, which does not have such tariffs. More assembly would tend to move to Mexico, worsening our automobile trade deficit with Mexico. This shows one of the unintended consequences of Trump’s policies. Tariffs for steel and aluminum will hurt auto production, which Trump also wants to protect, and undermine another of his stated goals.

Q: How does Mexico’s current level of heightened auto production relate to the pending NAFTA negotiations?

A: Mexico’s auto industry is growing because they have free trade agreements with respect to cars with countries (e.g., Europe) that America does not. A car assembled in Mexico would save a 10-percent tariff selling into Europe, which is big money (far bigger than production cost differences). The way to growth in the industry is freer trade, not added restrictions on trade.

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