A few days ago economist Paul Krugman (2025) asked tariff and trade expert Mary Lovely for her take on the Trump administration’s recent actions. Her responses in a question-and-answer interview were eye opening.
One of the most important impacts of Trump’s on-again, off-again tariffs against Canada and Mexico is that it results in uncertainty for businesses, argued Lovely, who is associated with a think tank called the Peterson Institute for International Economics. A major goal of the trade agreement Trump previously brokered with the above two countries was to allow business-investment decisions to be made with the confidence that the rug wouldn’t get pulled out from under them.
“And of course, President Trump blew a hole in that, like, right away,” stated Lovely. “So, well, maybe now the certainty that the U.S. will not adhere to its trade treaties, I think has certainly left a lot of producers wondering where they can go that’s safe to serve the U.S. market.”
Lovely added that even if automobiles end up being exempted from the tariffs that there would still be “an enormous amount of trade in auto parts.” This is particularly the case between the U.S. and Canada. “There are vehicle models that have to pass back and forth across the border seven or eight times before they’re finished,” she said.
Latest exemptions add to business uncertainty
The backlash against Trump’s announcement of the Canada and Mexico tariffs was so intense that the administration backtracked by exempting trade for one month that meets the content-of-origin rules of the current multilateral agreement.
One problem with that is the lack of clarity about what the exemption applies to, according to Lovely. “It’s horribly confusing for the auto industry because they don’t know if this just means them, if it means their suppliers,” she said. “We also hear there’s a lot of pressure on the OEMs, original equipment manufacturers, that usually co-locate around production plants to move into the United States to invest in the United States and that they may be given up to a month. Now, anybody who thinks about this will realize that there’s no moving a plant in one month.”
If the administration’s goal is the reindustrialization of the U.S., Lovely argued that its approach shows a misunderstanding of “how supply chains have changed since the 1970s and how we might go about it in a way that doesn’t actually create asset destruction and that the U.S. might be able to actually benefit from.”
Also see ‘Why are auto industry and media so surprised by Trump’s tariffs?’
Lovely and Krugman cover a lot more about tariffs that is worth reading in full (go here). If you mainly know Krugman from his political commentaries in The New York Times, note that he has had a day job as a scholar and in 2008 won a Nobel Prize in economic science for his research on trade theory (Wikipedia, 2025).
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RE:SOURCES
- Krugman, Paul; 2025. “Tariffs! Tariffs! Tariffs! In Conversation With Mary Lovely.” Paul Krugman. Posted March 8.
- Wikipedia; 2025. “Paul Krugman.” Page last edited March 2.
- WSP; 2025. “Peace Arch Historical State Park.” Washington State Parks. Accessed March 8.
Trade expert says Trump’s on-and-off tariffs create business uncertainty
Homer Simpson could figure that out.
If that’s such an obvious point then why is the most powerful nation on earth failing to understand it?
Trade wars and tariffs are never pretty. However, they are not new to the Automotive industry. Supply chains in the automotive industry have becoming increasingly global. Countries around the globe have encouraged automotive industry expansion through trade policy. As the sun has set on the domestic big 3, numerous other manufacturers have set up shop in the USA helping to keep our automotive manufacturing sector going strong. Part of the reason they have done so is the sheer size of the US auto market, but tariff and trade policy factors into the equation as well. Automakers as profit seeking organizations, have sought to lower production costs by outsourcing low value parts making for decades. Sometimes it works (Prestolite, Borg Warner, Lucas, Bendix, etc) and sometimes it doesn’t (Takada air bags), but it’s here to stay. How much of the tariff impact will be absorbed versus passed along to consumers? Likely most of it.
The industry has evolved from a time when Henry Ford wanted to control his entire supply chain to what it is today; a highly integrated, globally sourced vehicle design and assembly operation – not pure play manufacturing any longer. Today’s automotive manufacturing operators must be cost cutting and supply chain geniuses to not only thrive in, but to survive in a brutal market.