British carmakers will be given a quota of 100,000 cars a year that can be sent to the United States at a 10% tariff rate, almost the total Britain exported last year, compared to 25% for Mexico and Canada and nearly all other countries.
“Under this deal, it will now be cheaper to import a UK vehicle with very little U.S. content than a USMCA compliant vehicle from Mexico or Canada that is half American parts,” the American Automotive Policy Council, which represents the Detroit Three automakers, said on Thursday. “This hurts American automakers, suppliers, and auto workers.”
U.S. automakers are concerned this could be a template for other agreements that could put vehicles they assemble in Canada or Mexico at a disadvantage.
Meanwhile, Ford management is confident it can pass any cost, plus a profit markup, on to customers, and customers will simply opt for a longer financing period. This is how the big three have been able to drop their lower priced models, and ratchet prices, and margins, higher and higher, for years.
Analysts on Ford’s earnings call this week wondered how resilient Ford’s customers would be should the company need to raise prices soon. The company’s executives didn’t seem too worried, however.
“We see customers doing what they can to afford a new vehicle. I mean, we’ve seen 84-month financing increases as a share of our offers on the financing side. Natural levels are well within the bounds of the industry, but customers are doing what they need to to adjust for their payments,” said CEO Jim Farley.
For now, Ford expects new car buyers to maintain demand in the face of rising prices by agreeing to longer loan terms.
This seems to be the micro version of Friedman’s macro scheme of printing and borrowing to infinity to pay for imports: the notion that US consumers can always be induced to take on more and more debt.