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Trump threat to cut all GM subsidies, tax credit could backfire

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President Donald
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  • General Motors announced a
    round of layoffs and plant closures on Monday.
  • President Donald Trump is not
    happy with that decision.
  • Trump’s policies weren’t the
    main reason for GM’s move, but they probably helped push the
    automaker toward the decision.
  • Trump’s proposed responses to
    GM’s decision — cutting subsidies and imposing auto tariffs —
    would likely make things worse.

President Donald Trump’s latest
threats to get back at General Motors could end up doing the
exact opposite of what he wants.

In the days since

GM announced it

would lay off roughly 15,000 workers and idle
four factories in North America, Trump has attempted to bully and
badger the US automaker into sticking around. But the president’s
tactics are only going to make GM, and other companies like it,
more likely to get out.

Trump probably helped make GM’s call easier

Trump’s policy goals may have
helped contribute to GM’s decision to lay off 15% of its salaried
workforce and shutter the plants.

Neil Dutta, head of US economics
at Renaissance Macro, laid out the reasons:

  • “Trump wants to boost auto
    manufacturing. He wants low gas prices,” Dutta, Renaissance’s
    head of US economics,  said in an email Tuesday.
  • “He has seen relative low gas
    prices through most of his tenure (even lower now).”
  • “That has slowly made cars like
    the Volt and Cruze pointless to buy. Auto manufacturing gets
    hurt.”

Additionally, Trump’s tariffs on
steel and aluminum helped drive up GM’s costs by $1 billion this
year. While the ultimate decision to close the plants appears to
be more related to the industry trends and consumer
demands,


experts told Business
Insider


that the
tariffs likely accelerated GM’s timeframe.

In response, Trump could try to
make it more economically viable for GM to continue to produce
cars or other vehicles in the US to stem the layoffs and prevent
further losses But instead, the president is threatening to do
the exact opposite.

Subsidy cut, tariff threats would backfire

Trump has floated two ideas to
punish GM and encourage more US auto production: cutting
subsidies and adding auto tariffs. Economists say both would
backfire:


  • Trump said his administration
    is “looking at cutting all GM
    subsidies, including for electric cars.”
  • He said Wednesday that GM’s
    decision has prompted him to think about imposing tariffs on
    imported cars, trucks, and auto parts.

It’s unclear exactly what
subsidies Trump was referring to in his tweet, but most think he
was talking about the electric vehicle tax credit, which gives a
$7,000 break to anyone who buys an electric vehicle.

As Business Insider’s Matthew
Debord


pointed
out


, the threat to cut
the electric vehicle credit is essentially meaningless to GM,
since the credit is already set to expire within the next two
years.

But if Trump scraps the subsidy
for all manufacturers to spite GM or increase overall production,
this would cause electric cars from other companies to become
more expensive — and likely end up hurting auto manufacturing in
the US.

“He wants to cut electric car
subsidies, [auto manufacturing] gets hurt even more,” Dutta said.
“It’s the classic Trump thing of policies he supports working
against goals he also supports.”


Read more:

Trump’s threat to impose a ‘chicken tax’ on cars could cause a
major mess for the US economy»

The other idea,
higher auto tariffs
, would also likely end up backfiring.
Studies have shown that Trump’s idea of a 25% tariff on all cars,
trucks, and auto parts coming into the US would
result in a net loss of US jobs
,
lower car production in the US
,
offshoring of car manufacturing
, and
a substantial hit to the US economy
.

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