We’ve reported about the assembly line shutdowns worldwide over the microchip shortage. It was being blamed on COVID-19 and that manufacturers using chips ordered less. They thought vehicle sales would be slow for some time and so ordered accordingly. They could not have predicted the increase in sales seen today. Now comes information that the problem is actually the Trump tariffs against China.
Production of some lines for Toyota, Honda, Ford, and Subaru, just to name a few, have shut down due to a lack of microchips. But now Reuters reports the Trump tariffs are to blame. In September Trump ordered that Huawei Technologies Co Ltd, could not buy chips made with American technology.
The Chinese telecommunications company makes millions of smartphones. To combat the ban it stockpiled chips in anticipation of it coming. At the same time, competitors began to also grab up chips in an effort to take advantage of what they saw as a Huawei manufacturing slowdown.
Trump’s tariffs prohibit semiconductor makers from using American tooling
Also, Trump’s tariffs include prohibiting semiconductor makers from using American tooling to make their chips. So many chip customers switched to other manufacturers to avoid an interruption of their production. “There’s a fear of using a Chinese chip factory if the United States is going to put them on an entity list,” said Daniel Goehl, the chief business officer of UltraSense Systems, to Reuters. This is partly due to more restrictions coming from Trump.
The Commerce Department says the bans were established “to ensure the Export Administration Regulation protects U.S. national security, economic security, and foreign policy interests.” However, this “security” has resulted in an estimated loss to manufacturers so far amounting to over 200,000 vehicles built. The shortage is estimated to last another six months. This according to AutoForcast Solutions.
“It’s four-dimensional chess all day long”
One auto executive commented, “It’s four-dimensional chess all day long.” Unfortunately, it seems the Trump administration can only comprehend tic-tac-toe. If production stoppages have cost manufacturers the production of over 200,000 vehicles since January 13, 2021, then six more months could cost companies millions of vehicle production shortages. That could amount to billions of dollars lost.
A week into some stoppages manufacturers like Ford are stopping slower-selling vehicles. They are able to shift their chip supplies to more popular makes like the hot F-150. But at some point, it will be more like Whack-a-Mole. They’ll be going back and forth between stopping different models to prop up others. And shutting down assembly lines is an expensive proposition. In the 1980s some companies found it cheaper to keep cranking out vehicles and heavily discounting them than to stop production lines.
Trump’s Republican party has always promoted free trade as a means to fuel the economy. It has always been the free-trade party. Ronald Regan once said, “One of the key factors behind our nation’s great prosperity is the open trade policy that allows the American people to freely exchange goods and services with free people around the world.” What happened to that?