(WXMI) — Tuesday, President Trump moved forward with his tariff plan, imposing 25% taxes on Mexican and Canadian imports. President Trump also doubled the tariff on Chinese products to 20%. He has maintained that these tariffs are intended to address drug trafficking and illegal immigration. But he's also said the tariffs will only come down if the U.S. trade deficit narrows.
Now, the state of Michigan does a lot of trading with our neighbor to the north.
I spoke with Associate Professor of Finance at WMU's Haworth College of Business, Matt Ross, who says Michigan is ground zero for a potential trade war and believes that this is just the beginning.
"Tariffs, for a place like Michigan that's doing a lot of international trade, is a pretty bad thing," Ross said.
Ross explains tariffs are taxes on imported goods. These taxes are paid by the company bringing the product into the U.S., not the country of origin, which often leads companies to pass the cost increase on to consumers.
"There is an argument to be made for imposing tariffs to protect domestic manufacturing, or to help encourage and develop domestic manufacturing," Ross said. "The counterargument is they actually did more harm than good. And that's kind of the prevailing view."
Ross says because Michigan is so closely integrated with Canada, and because Mexico is among the top three for our international trade partners, the state is more affected than most. “Given that the supply chain is so heavily integrated, particularly between the southern part of Michigan and Ontario, these tariffs are likely to cause a lot of frictions within the auto industry, particularly and more widely through Michigan industries," Ross said.
Retaliatory tariffs, Ross believes, are going to continue from Canada, Mexico and China. "I would expect costs are going to go up quite a bit, and consumers are going to start to feel it relatively quickly," Ross said.
This could be, according to Ross, the first of many rounds of tariffs. "It looks like we're at the beginning of an escalating trade war, and Michigan is right in the center of it," Ross said.
Additionally, Michigan imports billions of dollars of products from Canada, Mexico, and China. All three are our nation's biggest trading partners.
According to USA Today, Canada provides us billions of dollars worth of oil and gas, as well as iron, steel, lumber, and dairy. It's a similar story with Mexico — Michigan imports billions in agricultural products, electrical equipment, and components.
The hardest hit, though, will be Michigan's auto industry. From Ford to General Motors, car makers rely on supply chains that have parts crossing borders many times before the vehicle's final assembly.
Michigan Public reports more than 50% of imported auto parts from Canada have a final destination in Michigan. "The supply base is not that strong financially. But it will get to a point where they will say, look, unless you pay these tariffs, then we're not going to ship you parts... and then things are gonna get really interesting," said Jan Griffiths, President and Founder of Gravitas Detroit.
Griffiths says the auto supply chain is still recovering from the pandemic and cannot afford to pay tariffs. As a result, she says, you can expect automakers to pass the added cost on to you and other consumers.
Griffiths says Trump tariffs could make vehicles cost $8,000 to $12,000 more.
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