Solve for the equilibrium

The CEOs of Germany’s top three car firms, Volkswagen, Daimler, and BMW, said they were optimistic on avoiding US tariffs after meeting US leader Donald Trump in Washington Tuesday. “We made a big step forward to avoid the tariffs,” Volkswagen boss Herbert Diess said. The visit caused annoyance in EU circles, where trade commissioner Cecilia Malmstrom was meant to conduct US trade talks on behalf of the whole EU.

Here is the link, via Bruno.


Does Trump have a strategy in dealing with foreign car makers, or is he just making it up as he goes along? Or more likely, reacting to a comment some dolt said on Fox News. Remember in the early years of the Obama presidency, soothsayers (a/k/a economists) were saying that the problem for business was the "uncertainty".

I solved for the equilibrium: the end of the EU? Is that it?

My observation about Cowen's newfound admiration for Trump is that the "uncertainty" (i.e., chaos) created by Trump is a feature not a bug: it promotes dynamism rather than complacency. Not coincidentally, I read this morning that the Weekly Standard may shut down in a couple of weeks, it's Never Trump brand no longer appealing to the conservative base that has embraced Trump and Trumpism. I suppose the death of the Weekly Standard is an example of dynamism.

NeverTrump has very little popular constituency to speak of, and deserves none. Trump is more combative in regard to trade negotiations and has made a point of promoting immigration enforcement contra the perverse indifference to it characteristic of W and John McCain. Otherwise, he's been deferential to extant Republican constituencies, sometimes to a fault. The departure of the dithering nincompoop Paul Ryan is a good thing.

It was interesting to watch the Republicans process the midterms. They got beat because the country as a whole has tilted "never Trump." There was an interesting Pew poll on this recently (post midterm). It asked the direct question, have you decided your 2020 vote, or are you still considering? Something like 30% had decided that they would definitely vote for Trump, but 40% had decided they definitely would not. A 10% gap on the definites is pretty big.

But as I say, what did the Republicans do? They have chosen to consolidate themselves as the party of Trump.

That is a setup for a loser party, and maybe that is where clever Straussian Tyler is ahead of everyone.

The equilibrium is a Republican party that goes down hard. Tyler has decided to help lead the Donner Party into the mountains.

~ 40% of the population (i.e. ~ Democrats) would never vote for any Republican, so this is hardly surprising. Given the 24/365 media angst, I'm actually surprised its that low.

If you had asked the same question 2 years into Obama's first term, I suspect you would also have had ~ 40% of the population who had already decided not to vote for him. Again, hardly surprising.

Obama responded to his midterms by moving to the center.

I definitely don't want to give you the same advice. Trump should not try any bipartisanship. He should concentrate on the base, get them in their wagons, and get them moving towards the mountains.

Like this:

"Trump has told aides he doesn’t care about the national debt in part because when it becomes truly untenable he will be out of office"

Obviously anybody who buys into that is making the big commitment. This isn't even party before country. This is just a few years of very tawdry "glory" before it all hits the fan.

It was interesting to watch the Republicans process the midterms. They got beat because the country as a whole has tilted "never Trump." T

The president's party loses seats in congressional midterms about 90% of the time.

Excellent. Keep it up. Let Trump be Trump.

Opinion magazines have been haemorrhaging subscribers for nearly 20 years. The New Republic is a shell of what it was a generation ago, The New Leader folded, Policy Review folded, The American Conservative is down to about 12,000 subscribers, and National Review has been in a state of decay consequent to an inability in the last 15 years or so to recruit any engaging contributors to replace those who depart through ordinary attrition. Commentary by some accounts survives largely on the patronage of a couple of wealthy Jewish septuagenarians. The Weekly Standard is the least venerable of the pre-web publications and at least as devoted as any to topical takes. Other publications have other irons in the fire.

First, this is a reaction from the new USMCA negotiated earlier this year.

The new deal requires 75% of the value of a vehicle to be produced in US, Mex or Ca to be considered "domestic", up from NAFTA's 62.5 %. Engines and transmissions were manufactured in Germany and sent to America for final assembly. I think the Germans have to start to produce them in the NAFTA.....errr, USMCA area.

Tyler hints that a gentleman's agreement may be less cumbersome and cheaper than sustaining a large bureaucracy. Those bureaucrats are just expensive gatekeepers that do not add value at all, archetypal rent-seekers. But, two things may have happened: A) the CEOs discussed with Trump serious trade matters, B) the CEOs met with the relevant and knowledgeable trade/diplomacy bureaucrats in the US, discussed serious matters and had a nice photo with Trump.

I think situation B is more probable. US companies do the same in Europe. Does anyone cares about the US international trade commission when Google and Facebook have troubles in Europe?

'I think the Germans have to start to produce them in the NAFTA'

Or at least pretend to.

The dynamism in the car market makes yesterday's news almost worthless. With U.S. car makers exiting the car business, where will U.S. consumers turn if they want a car? I'm no soothsayer (i.e., economist), but I will suggest that with all the dynamism in the car market consolidation will soon be what's happening in the car business.

Something similar happened with Canada. The politicians went all "eeww cooties" when forced to deal with Trump, and were seemingly willing to lose auto production to make a point, not sure which. Everyone of any import was in Washington shuttling between the Canadian federal delegation for a screaming match and the Trump officials begging for mercy. The deal was signed last week in spite of tariffs remaining.

If the Canadian government is capable of rational thought, which is an open question, even they would come to the conclusion that the treatment they got was pour les autres.

Maybe Cecilia Malmstrom was going for the fawning hagiographies that our Minister of foreign affairs got in the Canadian press. The people with something at stake ceased reading the newspapers as a source of reliable information long ago.

I suspect what is happening to Macron has focussed at least some minds.

Care to provide some backing for the statement that Canadian politicians wanted to avoid dealing with Trump?

Trudeau notwithstanding (he was busy doing what he does best - PR), the foreign affairs delegation worked extremely closely with the trump administration as far as I can tell. They were just stubborn as hell to keep Ch. 17.

I can see you’ve never been fuck up the ass mr. C. H.

What's it matter? In less than the life span of a betta we'll have moved on to autonomous vehicles and there'll no longer be a consumer market for automobiles. Licenses for self-driving car services will be awarded like cell phone franchises and the cars themselves will be built by Bombardier or Lockheed-Martin. Isn't that the future?

well, Trump has a reasonable point overall on tariffs.

The EU tariff rate on all U.S. car imports is 400% higher than the U.S. tariff on imported European cars. Does that sound fair & equitable ??

German government and automakers have been quite happy with that situation... and no previous US Presidents acted to change things.
Trump at least noticed the problem and is acting strongly to change the very one-sided status quo.

(Gee, if only free-market-champion Obama was President again!)

Where do you get your data?

Is this a specific tariff on American cars, or is it a general border adjustment (VAT) for manufactured goods?

I know that we Americans have been able to order things like 3D printers from China and get them basically tax free, whereas Europeans buy the same printer with a healthy VAT.

Maybe they were ahead of us, but the real irony here has been that American conservatives hated on those EU border adjustments for decades, and even now don't understand them - as they very crudely try to replicate them.

We could use a little consistency in our framework, something I do not see happening here. It is still the populism of "bad deals" and punishment.

"Is this a specific tariff on American cars?"

Have American cars suddenly become desirable enough that it's worth aiming tariffs at them?

It's hard to say how well American cars would sell in Europe because there has never been a free market, and tastes are at least partially motivated by observation and experience. Europeans have few neighbors with American cars, there are no American car rentals, and there are no American car advertisements.

When I lived in Germany in the 80s, Germans were wild about the Jeep Wrangler. Somehow they managed to buy them from US servicemembers and outfit them to meet German emission and safety standards. Those standards in and of themselves are a form of trade barrier.

I don't think anyone can deny the main factor - that is that gasoline has been taxed and expensive in Europe since World War II.

Gasoline is currently $6.37 per gallon Germany.

Sure sure, everybody wants and can afford to drive a Jeep with real world mpg is about 20.

@a non

I agree with you on that point entirely. I had actually started writing that and deleted it for overall brevity. While Germans will buy American muscle cars, they are limited by those with the means to afford the gas taxes.

America certainly can build vehicles meeting their fuel economy standards. Tariffs serve as a substantial barrier to prevent the effort. They not only make the American cars relatively more expensive, but they suck the profit out of it.

There are a lot of moving parts, certainly. Another is that American companies have been building cars in Europe for the European market for close to a hundred years now.

It is very odd that in 2018 we focus on the image of American factories delivering to, what, right-hand-drive England?

(As a kid in the seventies (with a Pinto Wagon!) I wondered why I couldn't have a hotter 4-cyl with a 5-speed synchromesh, that Ford was offering in Europe. They were probably worried about cannibalizing that worst of all Mustangs, the Mustang II.)

'Another is that American companies have been building cars in Europe for the European market for close to a hundred years now.'

And GM has abandoned Europe, selling Vauxhall and Opel to PSA.

"PSA said it expects Opel to produce operating margins of 2 percent by 2020 and 6 percent by 2026. That compares to GM’s margins of more than 10 percent in North America for the past two years. The company has projected it will achieve that target again in 2017."

Ford and GM are heavily dependent on cheap gas being available for heavy high-margin SUVs.

Heaven help them if there's another oil pinch, or if someone starts taking externalities seriously.

'It's hard to say how well American cars would sell in Europe'

Quite well - the BMW Z3 and the Mercedes M class were definitely a success in Europe.

Oh wait, you didn't mean cars built in America by BMW or Mercedes, did you?

Can one solve a roulette wheel for equilibrium?

Yes, the casino ends up with all the money.

Won't anyone think of the poor EU administrator? I mean, how dare those CEO's make trade agreements regsrding their own companies! Everyone knows the best automobile trade agreements are made by unelected bureaucrats who know nothing about cars.

If you run Renault, Fiat and Mercedes, you might have something to say not wholly flatting about the unelected bosses at your commercial rivals inserting themselves into the trade negotiation. Lobbying concerns, cronyism and collusion, which this is simply a international twist on, are "libertarian" / free market concerns.

(Not that it's clearly feasible or just to attempt to prohibit this sort of thing in any degree. Hence, "solve for the equilibrium".)

Good point, but you should stop thinking of car maker CEOs as fierce competitors. These folks meet on a regular basis to discuss the future of automotive industry and I'm sure they will have they says about it soon (or had already).
Yeah to some level they are rivals, know, pretty much everyone smells a bunch of secret deals behind the curtains, so I'd advise to don't trust your free market instincts when it comes to this business.

The ACEA board of directors:
Note the picture where all the above-mentioned bosses sit together by their notes with friendly smiles on their faces in a family-like atmosphere.

After VW's dieselgate, journalist (and official) investigations showed that these companies pretty much controlled the EU administration like puppets anyways, so it makes little difference which way they use. Face-to-face negotiations are probably faster.

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