Tariffs: Helping or Hurting General Motors?

It sounds straightforward. Since steel and aluminum have been hurt by the low cost of imports, increase prices on imported steel and aluminum and you save US jobs. You might even call that Tariffs 101 if there were actually a class offered on the topic. Those in favor of tariffs argue that the US imposition of 25 percent tariffs on imported steel and aluminum in 2018 should increase the competitiveness of many US industries.¹⁶⁹

Managers at General Motors appreciate efforts to make their products more competitive. But being a global company makes tariffs more complicated. GMs supply chain depends on 20,000 businesses worldwide. About 30 percent of GMs cars were made outside the US in 2017.¹⁷⁰ GM buys imported steel and aluminum on a scale that the US might not be able to produce on its own. GMs market is global too. However, tariffs work two ways. When the US enacts tariffs, affected countries fight back with retaliatory tariffs. Because of the US steel and aluminum tariffs, China, Canada, Mexico, Turkey, and the European Union placed tariffs on $28.5 billion worth of US exports.¹⁷¹

When European or Asian countries impose tariffs on US firms, the cost of their products in these foreign markets go up and sales go down. Millions of American cars are sold each year outside the US. With tariffs, the cost of an American car sold outside the country would increase by $5,800 and annual sales across all American car companies would decreas by one to two million vehicles.¹⁷² Without healthy foreign sales, GM would suffer.

The US appealed to the World Trade Organization, claiming that these retaliatory tariffs from other countries are illegal. The US argued that tariffs on steel and aluminum were necessary for national security reasons, as many important industriessuch as autos, aerospace, and electronicsdepend on these metals.

GM also is confronting uncertainty in other areas related to global trade. If the US pulls out of the North American Free Trade Agreement (NAFTA), GMs cross-country supply chain could be thrown into disarray. GM has operations that span the US, Canada, and Mexico. GMs supply chain is like a Rubiks Cube, according to GM North American President Alan Batey.¹⁷³ Anytime a change happens in one part of the supply chain, there is a ripple effect that affects the entire process of making cars.

GM doesnt just sit back and watch what happens in the global trade arena. GM CEO Mary Barra has urged the US president not to get rid of NAFTA.¹⁷⁴ GM submitted some of the more than 2,500 comments to the US Commerce Department about the steel and aluminum tariffs. GM argued that the tariffs would increase car prices for cars bought by consumers who cant afford such increases. GM as a company also might become much smaller due to increased prices and lower market share.¹⁷⁵

4-19. With so many external environmental forces affecting General Motors, what could executives at General Motors do to manage this uncertainty?

4-20. What do you think General Motors might need to do better to navigate the changes happening in the global marketplace (including the pendulum swinging away from globalism toward nationalism)?