In the Age of Tesla, Trump Is Driving a Rusty Old Ford

President Donald Trump's trade policies are meant to ensure U.S. companies do more "winning", while his populist politics need a cast of enemies to blame when that doesn't pan out. Foreign carmakers, particularly German ones, are a favored nemesis.

Trump on Saturday threatened a "Tax on their Cars" should those dastardly Europeans enact tit-for tat tariffs in response to his new steel and aluminium levies.

But clobbering Volkswagen AG, BMW AG and Daimler AG with import duties won't do anything to help Detroit succeed in the era of autonomous and electric vehicles. If, like Trump, your preference is to see trade as a battle, technology is the weapon that will win it.

Tech Fight

Automakers need to keep spending heavily on R&D to avoid being displaced by tech companies

Source: Strategy&

Of course, Trump's Twitter broadside probably didn't have too much thought behind it. As I've pointed out before, Germany's carmakers have spent heavily to localize U.S. production, particularly for the sports utility vehicles that are in such high demand there. BMW is famously a net exporter from the U.S.

No matter. The president sees the parking lot at his Palm Beach country club jammed full of fancy foreign motors (Trump has owned a few) and concludes that the Europeans are up to no good.

In fairness, the U.S. is a large and very lucrative car market, hence it is by far the biggest destination for European motor vehicle exports. Europe also imposes higher tariffs on cars imported from the U.S. than vice versa.

Rich Pickings

The U.S. is by far the largest export market for European cars

Source: ACEA

But if foreign carmakers are guilty of anything, it's making high-tech cars that Americans actually want to buy, despite the frequently eye-popping sticker price.

Tesla Inc.'s nascent sales success in Europe is proof that if you have a technically-advanced product, import duties aren't much of a problem. The traditional Detroit manufacturers have found the cutthroat European market more painful, despite having plants there.

General Motors Co. was so tired of losing money in Europe that it sold its Opel/Vauxhall unit to Peugeot SA. It wouldn't be too surprising if Ford Motor Co., which makes most of its profit at home, did similar.

Were Trump to make good on his tariff threat, the most probable outcome is that U.S. auto sales would fall further as the price of vehicles rose and the entire industry's profits would suffer. The American autos giants import lots of vehicles too.

That wouldn't be too clever at a time when carmakers need all the capital they can muster to head off the epochal challenge from Silicon Valley giants such as Uber Technologies Inc. and Alphabet Inc.—whose record of creating reliable, decent-paying jobs for the masses isn't nearly as good.

As with his focus on coal, Trump seems to be fighting the last war here.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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