When President Trump learned that Ford Motor Co. had canceled plans to import its new Focus sport-utility crossover from China because of his tariffs, he suggested on Twitter that the carmaker could now build the vehicle here, duty-free.
Ford says it can’t, at least not without losing money. So it won’t.
“We made a business decision to stop development of the Focus Active crossover for U.S. customers due to the negative financial impact of new tariffs on vehicles imported from China,” the Dearborn, Mich.-based company reiterated after the president’s Sunday tweet. “It would not be profitable to build the Focus Active in the U.S., given an expected annual sales volume of fewer than 50,000 units and its competitive segment.”
Ford first disclosed its cancellation of U.S. sales of the model on Aug. 31, amid mounting concern that Trump’s tariffs — which he says may cover a total of $517 billion in Chinese imports — will drive up the cost of products from vehicle parts to clothing and Apple Watches. Lawmakers and economists alike have warned that the escalating duties, which the president has imposed on most metals imports and is considering on automobiles, may undermine the benefits from last year’s tax cuts.
Trump, who’s simultaneously attempting to renegotiate and rename the North American Free Trade Agreement, has largely brushed such worries aside.
“Ford has abruptly killed a plan to sell a Chinese-made small vehicle in the U.S. because of the prospect of higher U.S. Tariffs.” CNBC. This is just the beginning. This car can now be BUILT IN THE U.S.A. and Ford will pay no tariffs!
— Donald J. Trump (@realDonaldTrump) September 9, 2018
If the U.S. sells a car into China, there is a tax of 25%. If China sells a car into the U.S., there is a tax of 2%. Does anybody think that is FAIR? The days of the U.S. being ripped-off by other nations is OVER!
— Donald J. Trump (@realDonaldTrump) September 9, 2018
The Focus Active, which wasn’t scheduled to arrive in the U.S. until 2019, was one of only two traditional passenger cars that Ford planned to keep building in the U.S. as new Chief Executive Officer Jim Hackett concentrates almost exclusively on trucks and sport utility vehicles. None of Ford’s other models sold in the U.S. are imported from China.
Ford, which has 85,000 American employees, builds more vehicles in the country than any other automaker, and its $23.7 billion in North American sales in the three months through June accounted for more than two-thirds of total automotive revenue.
How that might be affected by Trump’s widening trade war remains to be seen, though carmakers and their trade groups have cautioned that tariffs pose a significant risk to business models built around cross-border supply chains. Now that a required public-input period on tariffs applying to $200 billion in Chinese imports has concluded, they could be imposed at any time.
In addition to existing duties on $50 billion of goods from the world’s second-largest economy, the new levies would cover about half of all Chinese shipments to the U.S. Trump says duties on another $267 billion of imports are in the works.
“Escalation has a tendency to breed further escalation,” said Seth Carpenter, an economist at Swiss lender UBS. “The Chinese government’s response should come quickly after the U.S. tariffs are announced; in July, the response was almost instant.”
A full-blown trade war could bring the U.S. economy essentially to a halt, UBS analysis has shown. As tariffs push prices up and drive consumption lower, the manufacturing sector may prove particularly vulnerable.
Right now, it’s booming, adding more workers than at any point since the 1990s. But “much of that expansion,” Carpenter said, “owes to new firms, and 10 percent of new firms fail in the first year, often because these firms are unable to withstand a cost shock. We see tariffs causing a swath of new firms to fail.”
