31st Annual Automotive Insights Symposium | Automotive Policy & Regulatory Outlook

KRISTIN DZICZEK: Glad to see you back in chairs. And I want to kick off and be prompt. We want to be respectful of your time. And I have to remember my password to get into this thing, so give me just a second. So welcome back.

For those people just joining online, I'm Kristin Dziczek. I'm the Automotive Policy Advisor here at the Federal Reserve Bank of Chicago. And I have to remind you that any views I may express today are mine and mine alone, and not those of the Chicago Fed or the Federal Reserve System.

Also, keep in mind that the Fed does not have any horses in this race. We are not going to take any stances on executive, legislative, or fiscal policies. We stay in our lane. Stable prices, maximum employment, that's what we do. But like many of you, we are keen observers of federal and state policies, and we must be to better understand federal actions and how they affect the economy. That is our job.

And that's why we host events like this, so that you, too, can gain some new insights into these critical issues. I want to thank you for joining this panel, entitled Automotive Policy and Regulatory Outlook. I'm going to admit that that topic sounds really boring, very boring.

And I'm probably not the most creative at naming panels, but I hope that you'll agree that policy and regulatory environment is critically important to this auto industry these days-- tariffs that went into effect on China and were on hold with Canada and Mexico, to emission standards, federal production incentives for batteries and EV chargers, regulating developing and emerging technologies, export controls, automated driving, AI, even old technologies like AM radio. And I know some of you are going to groan about that. I'm sorry. But you know, the regulations are not just on the cutting edge of the forefront of technology.

Today's panel is going to delve into a shorter list of policies that impact the industry's global competitiveness.

We'll review some recent executive orders, memoranda, and directives that impact the auto industry and explore how a president uses these tools to effectuate his policy agenda in Congress and the agencies. We'll have an overview of the state of play of fuel economy and GHG regulations. We'll talk about why reconciliation is going to be a hot topic in the months to come.

And we will, of course, talk about trade policy, being careful not to frontrun tomorrow morning's trade session with my colleague, Thomas Clear, that's on the forces shaping the automotive trade geography. I think you'll agree that this panel could not be timelier. Heck of a week for an auto conference, as I keep saying. And I think we couldn't have three panelists who would be more qualified to inform us about the twists and turns of making automotive policy. I'll introduce the panelists in order. Each will come to the podium and give some brief remarks, and that will help frame our discussion. And as always, if you are joining online or in the room, you have equal access to the Q&A through your attendee portal. So please, queue up some questions, because I know that will make this a much more engaging conversation. So I'm going to do all of the introductions and I'm going to go sit down.

So first up, we'll hear from Bridgett Dooling. Bridgett was the first panelist I booked for this conference, in September, I think last year. I wanted to have her bring her expertise as an executive branch scholar and her knowledge about how government really works to this discussion. What can you do with the stroke of a pen or a sharpie?
 
Professor Dooling is a faculty member at the Ohio State University. I'm a Michigan grad, so I have to emphasize the "the." Her experience includes administrative law, regulation, and legislation. And before joining OSU, she was at George Washington at the Regulatory Studies Center. She has served as Deputy Chief, Senior Policy Analyst, and attorney for the Office of Information and Regulatory Affairs, or OIRA. And that's part of the Office of Management and Budget, and she was there under both presidents Bush and Obama.

Next, we'll hear from my good friend, Dave Schwietert. Dave is on speed dial for me and has been for years. If there's any issue that involves the auto industry and the federal government, the odds are Dave knows absolutely everything about it or knows somebody who does. And better yet, he can explain all sides of the issue with great clarity. I always learn something when I talk with Dave. I hope he learns something from talking to me, too.

He just recently joined the multinational law firm of Akin Gump, where he's a Senior Policy Advisor. Dave's expertise includes serving as Chief Government Affairs and Policy Officer for the Alliance of Automotive Innovation. That's the big trade group for the automakers, some suppliers and some new energy stuff. But he also worked on Capitol Hill, including as the longtime Legislative Director for the now Senate Majority Leader John Thune of South Dakota.

Our last panelist is Everett Eissenstat. Everett is known as one of the nation's top global trade experts and is currently a partner at Squire Patton Boggs. Like our president, Austan Goolsbee, Everett is a frequent commentator on issues of importance in the media, his areas in trade in the national and international media.

Like Bridgett and Dave, Everett has spent time in the federal government service. He was Deputy Assistant to the President for international economic affairs and Deputy Director of the National Economic Council during President Trump's first term. He was also Chief International Trade Counsel at the US Senate, Assistant US Trade Representative under both Presidents Bush and Obama, and he was the Senior Vice President for Global Public Policy for General Motors, too. So with that, I think you'll agree these are pretty qualified folks for this discussion. Please welcome our panelists. So Bridgettt, the floor is yours to kick us off.

[APPLAUSE]

BRIDGETT DOOLING: Thank you, Kristin. Thank you so much for that wonderful introduction. It is really, really great to be here. It's my first time in Detroit, actually, so especially pleased to be here and to be learning from all of you about the auto industry. I'm something of an interloper here. I'm not an auto person at all. So I did wonder why Kristin called and said, will you come talk to us? I thought, my goodness-- [LAUGHS] you do know I know almost nothing about auto, to the extent that I have a modal connection. It's more to the airlines because I used to work for US Airways. I also worked for one of their trade associations, which is now called Airlines for America.

I also spent time at the DOJ Antitrust Division, the US Department of Labor, and of course, the Office of Management and Budget. And at OMB, I worked with Republicans and Democrats. I was a civil servant for over 10 years at OMB, and I have a long track record of working with folks from all different ideological backgrounds and providing nonpartisan advice, basically trying to call it how I see it and letting folks make their political choices from there.
 
So I bring that perspective of a longtime federal civil servant to my work now as a law professor. And I write about and I study administrative law and regulatory policy. And you can't do that without thinking a lot about things like the presidency and Congress and ideas like separation of powers. So I always pay close attention to presidential campaigns and transitions, and then of course, the actions once a president takes office.

So I want to first acknowledge that we are seeing an unprecedented disregard for the rule of law in Elon Musk's spree of unlawful actions in federal agencies and Russ Vought's efforts, despite not being confirmed as the OMB Director, to hold back or impound lawfully appropriated funding from being spent. I won't digress into the specifics of those issues here today, but I just don't think we can talk about the regulatory outlook of a second Trump term until we establish that while, in many ways, this second term picks up where the first term left off, it is already doing so in a way that is demonstrably far less restrained by the rule of law.

OK. So in terms of regulatory policy-- which is a term I use to describe not just an administration's posture towards any one sector, but really, the animating policy that sits in the background of how a president thinks about approaching any sector. And you are all probably very accustomed to thinking about the regulatory and trade environments for automotive, and I will completely defer to you on the specifics of that. My role here is to help us zoom out and think about how a president approaches regulation in a more general way, and that's what I mean when I say regulatory policy.

So we have a few initial actions that show us what to expect from Trump. The biggest is called a regulatory 10- 41, which was issued in executive order 14192 just last week. The idea is that for any new regulation issued, an agency must find 10 to remove. This might sound familiar, because in Trump's first term, he had a 2-for-1 policy, and that gave him a lot of talking points about deregulation. I mean, over and over, we heard the three sort of Trump policy outputs-- judges, taxes, deregulation.

The problem with those talking points about deregulation was that the number of accounting gimmicks that went into those estimates was off the charts. So just to give you one, a wide swath of actions were considered to be deregulatory, while only a narrow set of actions counted as regulatory. So in those stats, it was always deregulatory apples to regulatory boulders.

And it's also quite strange to think about how to count regulations. I mean, you might be aware that one regulation might be long and complex with lots of different pieces to it, while another might be fairly compact. But that policy, this policy of counting 2-for-1, 10-for-1 doesn't take any of that into account. One document is one document. So we don't weight these things, or the administration decided not to weight these things by their complexity, their significance, or anything like that. It really is just the number of documents.

Now, one of the areas where this accounting exercise made it hard for Trump to meet his goals in the first term was in the immigration context, because there, in Trump's first term, they issued a large number of costly immigration regulations. In the second term, Trump exempted immigration rules from the 10-for-1 order. So they're giving themselves a pass from even this highly gimmicked, if that's a word, accounting exercise.

There's also a component of this executive order called a regulatory budget, which caps regulatory costs. Another part of it reinstates executive review of tax regulations, something that the Biden Administration got rid of. This is one aspect of this new EO that I think is very well-justified, Something that I can get into more in Q&A or afterwards, if you're curious.
 
So on this 10-for-1 exercise, I suppose I just want to leave you with the impression that this is less about actual deregulation and more about being able to claim deregulation. What I mean by that is that the vast majority of regulations exist because of statutes that Congress has enacted and that the agencies are implementing. The President has no ability to get rid of statutes on his own. So even in Trump's first term, his claims about massive deregulation were, in reality, a backtrack from a portion of rules created in the Obama Administration.

Let me try an auto analogy. We'll see how this goes. If federal regulation is a large and complex auto, full of intricate systems, all designed to serve a different purpose, his first term made a dent that the average body shop could repair. It was nowhere near totaled. So I'd encourage you to be cautious, as consumers of deregulatory claims and visions, for this second term.

And in general, I want to encourage you to think broadly about what an executive action is. It's not just executive orders. It's the full set of levers that every president has to exercise discretion over policy. So that includes executive orders and presidential memoranda, but also rulemaking, adjudication, tariffs, grants, policy, and on and on and on. But presidential authority-- even with this wide range of actions and tools in the presidential toolkit-- presidential authority in our elegant constitutional system is not unlimited. That was, in fact, the point of the Constitution. The president is not able to undo statutes or ignore them, and even undoing regulations requires going through the process that Congress established in one of my favorite statutes, the Administrative Procedure Act.

And when it comes to things like mass layoffs, terminations of our civil servants, turning off contractually obligated federal payments, plugging strange servers into secured federal data, and more, those actions are also bound by law. Contract law, grant law, and due process are not just concepts. They are law, and we are already seeing folks take to the courts to vindicate their rights.

In the meantime, we are left with what looks like a smash-and-grab. As government websites go dark, agency doors are locked to the public and to our members of Congress, and civil servants have their jobs and more threatened. If any of this is news to you, I encourage you to scrub in and pay attention to what is happening even this early in Trump's second term. We will be dealing with the fallout of all of this, which is still unfolding for a very, very long time, and I look forward to the discussion today.

[APPLAUSE]
 
DAVE SCHWIETERT: Well, thanks so much, Kristin and Bridgett. It's great to follow you. I guess not only am I glad to be here and been invited to participate, both Rick and, obviously, the Federal Reserve. But I guess that was maybe most flattering introduction as it relates to being called boring.

[LAUGHTER]

But I'm happy to join you today. Again, David Schwietert with Akin Gump. Bridgett, I think there's no question that you set the stage as it relates to, obviously, the fact that this Administration-- even though it is the President's second term, there's no question that he and his Administration, across the board, is focused on action. And I think it's important to keep in mind-- Bridgett, you gave me a perfect springboard. If you look at the Administration, as they're working to effectively fill out the Cabinet as of, I believe, last night-- or maybe they just confirmed another one. If I'm not mistaken, roughly half of the President's Cabinet is now cleared, the US Senate, as it relates to their formal confirmation.
 
And as Bridgett and Everett and a few of us were talking about earlier, many of the President's Cabinet, while they're not formally installed, in terms of being confirmed, are otherwise actively involved, as it relates right now to a host of things that have already occurred. So what I'd like to do now is to give you my perspective. And I think, obviously, there's a lot going on. There's probably been nowhere near this degree of potential disruption, and certainly high stakes as it relates to the auto sector, writ large, whether you're a manufacturer, a supplier.

And I hope your takeaway from my discussion today is you'll certainly see how all this ties in, ultimately, to our economy and to the consumer.

So for the past decade, I've worked very closely, regardless of administration, on the actual regulatory requirements impacting the auto sector. And I think that's really important to understand, because the Trump Administration has already signaled, through a lot of those memoranda, as well as executive orders, how they plan to pursue certain things related to the auto sector. So Bridgett walked through a few of those as it relates to some key priorities, but we can't forget and point back to the executive order that the President has issued related to American energy independence. I think that's really important to keep in mind. It's probably one of the most overarching executive orders that really speaks to many of the priorities that the Trump Administration will pursue, along with Congress, potentially, in the next months and years ahead.

I think that's really important, because there's also other signaling that the Administration has made as a result of the President's swearing in, including executive orders that signal a policy related to effectively backing away from the previous Administration's adoption of the Paris Climate Accord, which is, obviously, one of the signature accomplishments of the previous Administration.

So with that, I'd like to set the stage by giving a couple reminders. One, the auto industry today is far, far different than it was eight years ago when President Trump was first sworn into office. Not only earlier today did we hear from Pete and Stephanie and others related to production and sales levels, we talked about average prices, which have obviously risen a great deal as a result of inflation and other effects from the COVID supply chain disruption.

But we have to also keep in mind-- I know Pete spoke to it as it relates to sales and service-- the average vehicle age on the road today is 12.7 years and growing. So obviously, there is a linkage as it relates to vehicle affordability, price of a new vehicle, and of course, the average age of the vehicles on the road, which, by the way, amount to about 286 million light duty vehicles.

Of course, we've talked about interest rates and inflation. We can't forget-- and I'll come back to it in a little bit-- the rise of China competition, or unfair competition, for that matter. And then, of course, if we just rewind eight years, the auto sector today is completely different as it relates to the industry investments that have taken place. Kristin, you noted-- I believe your number was roughly $180 billion of sunk investments. Not just announcements, but investments that have formerly been made or will soon be made in the auto sector just in the last four years. So again, I think that is a useful reminder.

So obviously, if we look back to just the most recent election, affordability was a very significant theme in the election. The President campaigned on restoring effective common sense and working to reduce costs for consumers. So I think that's something that we can't lose sight of. And there's no question that auto manufacturing and the impacts of government regulations fits squarely into that bucket of wanting to foster an environment that really creates jobs and reduces costs for consumers.
 
So I know it's just past lunch, and sometimes food can settle and people get a little sleepy, but I decided to put together a slide that will hopefully captivate a part of your attention. But in many ways, if there's one takeaway from my talk with you today, I hope you keep this in mind, whether you screen grab it, ask for a copy later, or write it down. I think this will be a very guiding maybe guide, so to speak, as it relates to what the industry, both in terms of manufacturer, suppliers, and ultimately consumers, need to be watching for, because this is simultaneously both a short game, a medium game, and a long game all at the same time, in terms of things that we're going to likely see from not just the Trump Administration, but from others, whether it's Congress or states in the coming weeks, months, and years ahead. So I put together a few slides to really emphasize what's at stake. So obviously with that, let me advance the slide here.

So I call this-- and I don't state this lightly-- I call this Automotive Sector Bingo. And, effectively what is required to win? And by winning, I mean not just winning from a political standpoint. I mean, what does the US need to do to ensure that we're competitive in the years ahead?

So obviously, we've got the bingo card. The first part of bingo, the B, we need to be very mindful not only what Bridgett talked about with memorandum and executive orders, but effectively, we all need to be cognizant, from a manufacturing, supplier, and consumer standpoint, of the impacts of the California ban on internal combustion engine vehicle sales.

California and the California Air Resources Board, at the end of December last year, under the Biden Administration, received approval for their waiver to effectively move forward under the Clean Air Act by getting a waiver that grants them authority to set higher standards than the federal government. So just keep in mind on your bingo card, you can't lose sight of the B, the ban, for internal combustion engine vehicles. And let me walk you through that.

Hopefully you don't have to squint too hard. You may have seen this chart in various ways, and I would like to compliment a colleague at the association I used to work at, who's with us here today, Mike Hartrick and his team. But what this is depicting is effectively the sales requirement that an individual automaker needs to reach in each consecutive year, starting in this calendar year, model year 2025. That effectively grows to 100% by 2035.

So the important part here is to look at the dotted lines. The dotted lines on top are effectively California's electrified vehicle sales. And when I say EV sales or ZEV sales, I mean battery electric, plug-in hybrid, as well as fuel cell. So to reach those requirements, it gives you an idea of not only where California stacked up roughly last year, at or around 26% of all new vehicle sales being electrified, but down below, the darker dotted line effectively shows where the US average is. We ended the year last year, as a country, with overall light duty sales at roughly 10%. That accounted for battery electric, plug-in, hybrid, and fuel cell.

So again, you've got to keep this in mind. So for your bingo card, if you're scoring at home, you can't lose sight of the impacts. And here's why, because you might say, well, Dave, why does that matter? I live in a state, or I don't sell in that state, or I don't have consumers or constituents in that state.
 
Well, under the Clean Air Act, once a state has been given higher regulatory authorities or powers, any other state can elect to follow suit. So what you see depicted here is roughly a dozen states that follow California, and it's effectively backing out those manufacturers that only sell electrified vehicles. And this gives you a market share composition of where each one of these states that currently is following, or plans to follow, California's internal combustion ban and where they stack up.

So if you squint really hard, depending on where you are, that upper blue line shows the delta of roughly 20% to 30% gap of where certain states land between now and this year's requirements. The next level up shows the subsequent year, which grows by roughly 9%. So my point with this is, on your bingo card, you can't lose sight of the fact that these states combined amount to a little over a third, but just under 40% of all vehicle sales in the United States. So I'm not an economist, but I do know if our national average is at 10%, California is selling at around 26% to 28%, there's probably going to be a really big problem as it relates to reaching these numbers at 35%, growing to 100%.

All right, back to the bingo card. The next one, the I. I call it Irrational federal standards. And by that I mean the corporate average fuel economy standards, the greenhouse gas criteria standards, and the petroleum equivalent factor standards that were finalized just last year under the Biden Administration for model years '27 to '32. So it was nice to see, and if I remember right, Stephanie, that was on stage earlier-- actually, I think along with, maybe, Pete-- mentioned that there's no question that with recently finalized federal standards, there was going to have to be reality set in at some point. I think Stephanie mentioned something maybe between model years '28 and '32.

Well, my point here is that there's no question that the standards that were finalized last year were weighted or based upon a high degree of electric vehicle adoption. So I'm going to go back to a chart. And this is the hat tip to Mike Hartrick at auto innovators. So on the left side, you're basically seeing two lines that are effectively outlining the EPA greenhouse gas requirements. If you can't read the x or the y-axis, it's effectively denoting the degree of carbon reduction.

So last year, just to give you a benchmark, model year '22-'23, there was roughly 215 grams per mile of carbon coming out of light duty vehicles. That's cars and trucks. The recently finalized Biden standards, looking out to 2032, require that to get down to roughly 84 grams by 2032. The only way that you can get there, while it might not be a federal requirement, is by electrifying at significant rates.

So again, what I'm trying to show on the left is effectively where we are today, what is otherwise in existing law, via the regulations that were finalized last year, and how that might impact the market, knowing that, again-- let's look back at the California graph before-- if the nationwide average of electrified vehicle sales is 10%, and these degrees of carbon reduction on the grams per mile basis need to effectively drop from roughly 215 grams down to 85 grams, the only way you can get there is widespread electrified adoption.

So I'm not saying here nobody should ever take anything I'm saying on electrified vehicles as being a naysayer. What I'm saying is, there's no question there's a trend towards increased electrification. The question is, at what rate? And what is the potential risk to the US market, to manufacturers, and to the supply chain?
 
So if we shift to the right-hand side, you're seeing a similar chart that itemizes effectively where the CAFE standards are. The x-axis for both of these charts is really important because it's showing you the cumulative growth, year to year on average, over the last 20 years, give or take. At various points, we've been growing at two to three, or roughly flat. The previous Trump standards were effectively 1.5% year over year. The Biden standards grew to 8% to 10% to 12%. And of course, you're seeing some of this growth on the left side, growing at 10 plus percent. And on the cafe side on the right, you're seeing similar growth. So again, this shouldn't be taken that the industry or manufacturers aren't committed to increased efficiencies and adoptions. But if the only way that you can get there is from increased electrification, that's going to be a problem.

All right, back to the bingo card. N, New trade policies. All I want to say on this one is I know we've got Everett coming up and we're going to have some great Q&A. You don't have to look far as it relates to the potential impact or disruption as it relates to supply chains, the potential impact on consumers, or manufacturers and suppliers on costs. This is not going away, so I don't think anybody should view what has happened, whether it's through Columbia, whether it's Canada, Mexico, or potentially Europe, as that just being an isolated storm.

G, Global competitiveness. We really need to be mindful, across the industry, really of what the US is doing to ensure that investments that are being made here in the US, and across North America's supply chain, are effectively spurring not only that increased investment, but also, that's going to play out before our eyes in the coming months.Congress right now might be focused on passing or adopting or supporting the President's nominees to fill the Cabinet out, but right now, the federal government hasn't finished its funding bill from last year that started on October 1st. Right now, that funding is set to run out on March 14th.

The reason I have the G on the bingo card when it comes to competitiveness is that once Congress finishes the budget and things related to the debt limit, that we're operating under borrowed time right now, it's going to have to turn back to what is known as budget reconciliation. And that is going to be the singular crowning policy and legislative item that Congress and the Administration work on this year, because it effectively has to be dealt with by the end of this calendar year, 2025, or otherwise all individual tax rates, among other things, reset and increase. So everybody needs to be mindful of the G on your bingo card.

We need to be mindful of what's happening here domestically. This is not just something that resolves itself. Kristin, you highlighted this. Your graph was perfect. Those pie charts related to the impact of China imports into the US market. Very fractional currently. But when it comes to global competitiveness, the US has to understand that there's things happening beyond our borders that we have to be mindful of, because the US exports roughly
1.5 million vehicles a year, that are produced here in the US, abroad.

If the US acts as though we don't have to do something to make sure that we're competitive to counter China, it would be the equivalent of having an Apollo space program but not having a competitor, or just throwing your hands up and saying, well, we're not going to compete. That is what is at stake. So when I say global competitiveness, that's not just tax policy. It's also what the US is doing to situate itself to ensure that manufacturing and innovation are thriving.
 
And last but not least on the bingo card, the O. I call it Outstanding federal litigation. People need to pay attention. There are six federal litigation streams currently ongoing, one of which is currently pending at the US Supreme Court. So if I was advising the Trump Administration or talking to a Republican or a Democratic office or talking to the state of California, you can't overestimate the impact of pending litigation that could otherwise be a wild card related to what federal regulatory powers and authorities-- And I'm not just talking about delegated authorities, I'm talking about things like major questions doctrine, and the degree to which the Loper decision will inhibit certain actions of federal agencies going forward.

So again, what the Trump Administration decides to do with these cases is going to be critical to suppliers, to consumers, to manufacturers, because it's going to provide the basis by which, under one of Trump's executive orders that were issued just a couple of weeks ago-- the first memoranda that Secretary of Transportation Duffy took the night that he was sworn in was a memo instructing the National Highway Traffic Safety Administration to effectively initiate a review of those Biden standards to effectively recalibrate them one way, shape, or form.

So again, this isn't about whether we can have august standards. It's not about whether or not there's a commitment towards increased efficiency. It's about whether or not there's a difference between something that is effectively viewed as an aspiration when it runs head-first into reality. So I think that's ultimately what we're going to see in the coming weeks and months.

So whether you keep this bingo card, or from a year from now or two years from now, you reference it, I think these are going to be the guiding principles that will determine not just the short-term benefits and the signals that are sent-- whether it's dealers, whether it's suppliers, whether it's auto manufacturers, and ultimately the consumer. But what is the US doing to address that short-term desire, which is built up on overregulation and potentially addressing consumer issues, overlaid with what we're doing to make sure that the US is equipped to be competitive in the years and decades ahead?

[APPLAUSE]
 
EVERETT EISSENSTAT: Well, good afternoon, everyone. I'm here to lift everybody up after those delightful-- I wish I could say I was going to do that. I'm going to try, but I don't think I will.
 
AUDIENCE: You're going to talk about trade.
 
EVERETT EISSENSTAT: I'm going to talk about trade, just what you want to hear about after lunch. But I will say that was a very uplifting and special introduction with some good friends of mine, and I'm really pleased to be with such experts. There's so much to cover, we're not even going to scratch the surface. I'm just going to talk about trade, but I'm going to try to put it in the broader context. Everybody here works in the industry, or I assume has some relationship to the industry, or wouldn't be here.

The competitiveness landscape is brutal. And the difficulty in making a vehicle, selling a vehicle, designing a vehicle, planning production, and getting it to the consumer, and then getting them to buy it, is really not an easy thing to do. And then on top of that are all the policies that are coming down the pike.
 
Policy used to tell the auto industry to integrate, to integrate just-in-time delivery, get efficiencies into the system. And now the policy, particularly on trade, is coming from a very different way, saying, don't integrate. Look to markets. The competitiveness landscape is really, really tough. It's not just the policy we're going to talk about. It's the technological impacts, the fact that we're moving from ICE vehicles to EVs, from people-driven vehicles to autonomous vehicles, all the technology, the mapping, the data that goes into them. It's just an incredibly difficult environment to work in.

And then the competitiveness disruption, we've got new actors who are building vehicles differently and who are really seizing an amazing amount of market share. So that's just the overlay of what we have. And most recently, we have a lot of new trade policy that is really putting incredible pressure, and will put incredible pressure, on this integrated economic model that the automakers have been working under, and also the rules-based system that they've been working under.

And the rules they relied on for so long are not going to be adhered to over the next several years. And this didn't just start today or last weekend. This is something that actually started even prior to the first Trump administration, that this rules based order had started to fray, and now we're seeing it really, really fall apart.

So let's just go back, even before the Trump term, his first term. I had the pleasure of working there. It was a lot of fun-- tongue in cheek a little bit there. But it was very, very interesting. And the big question at that time was, are we going to use tariffs at all? That was the debate we had.

And that was during the first year or so of the Administration, and we fought over where whether tariffs were a good policy or not. And ultimately, the President decided, yes, we are going to use tariffs. And he used tariffs for 232 steel tariffs. That impacted auto sector. He used 301 tariffs on China. Many of those duties are still in place, even under President Obama. In fact, increased under Obama.

He did the NAFTA renegotiation. He tightened the rules of origin there, so that was a huge impact. And then President Biden came in and said, well, I'm going to put some new regulations on top of that superstructure. I'm going to come in and I'm going to give you tax credits. I'm going to incentivize this. I'm going to try to get you to build more electric vehicles and compete in that space.

Meanwhile, I'm also going to increase tariffs on China, And. I'm going to ban things like connected vehicle technology because it's seen as a threat. So this has been a pattern of people paying great attention to the auto sector, really almost an obsession with it from the political and the presidential level, and we'll get to that at the end of this.

Now we've got the new risks, the Trump campaign on tariffs. He said, I love tariffs. He said tariffs are the most beautiful word in the dictionary, maybe third most beautiful. He said, I'm going to do 10% to 20% universal tariffs, 100% tariffs on foreign vehicles, 60% tariffs on China, and 25% tariffs on Mexico and Canada.

And one of the attributes of President Trump is he does what he says he's going to do. That really freaks a lot of people out because people say, well, he's not really going to do that. Well, he did, and he will, and he does. So the question now is not whether tariffs will be put in place, but how they'll be used and what is going to be the outcome at the end of these four years, and we'll get there.
 
So some of the tools, some of the ways that tariffs are used and talked about are, first, well, it's just a negotiating tool. We'll just use it as leverage for negotiations. And tariffs could be very, very impactful. And we used to negotiate tariff levels down, now we're bringing them up. And the belief is, well, if you bring them up, it incentivizes people to bring them back down and maybe we'll get back to a level playing field.

However, this President also believes they are not only to negotiate, but to remedy unfair trading practices. So if India has a 70% tariff, we get a 70% tariff, and then it's fair. Also, to solve the trade deficit, that if tariffs go on other countries, our trade deficit will go away. I know many economists-- in fact, you'll hear from one who will probably say that doesn't work that way, but that's what he believes. And then we've seen most recently, even last weekend with Columbia foreign policy objectives, that if you don't do x, y and z, I'm going to put tariffs on your products.

So very, very disruptive. Very hard to even follow the bouncing ball. So first two weeks, what happened? First two weeks, what happened? Tell me, because I don't know. No, I'm serious. It was crazy. Literally, first two weeks. So the weekend before last, it was Columbia-- now, we have a free trade agreement with Columbia.

I worked on that free trade agreement. It took 10 years to put that agreement to negotiate and put it into force. It was not an easy thing to do. One weekend, one weekend blown up over the fact that the Columbian president wouldn't allow planes to fly with migrants. And that's pretty impressive. I mean, to blow up 10 years of work in one weekend is not to be-- you know, hadn't seen that happen happened before.

And then you've got the USMCA that President Trump renegotiated. He says, well, that's one of the worst agreements ever, right? 25% tariffs on Canada and Mexico, but only 10% on energy because that would hurt the US economy. OK, we can digest that a little bit, too. No limitations. All the things the auto sector uses to reduce costs and get inefficiencies, like drawback, the maquilas, all this is subject to tightening, the de minimis rule, particularly on China.

I mean, one of the things on China that was really fascinating is it didn't just put the tariffs on it. Really, it almost banned all the mail coming from China, and you'll read about that in the paper. So there's a lot of tightening here of the trade regime that's going to put incredible pressure on the integrated model.

Now, fortunately, the tariffs have been paused for 30 days and the Mexican government and the Canadian government are taking actions that are deemed to help on the border. And maybe it will resolve the drug trade problem. I hope so. That would be fantastic. We don't know. But it puts a lot of stress on the auto sector.

And unfortunately, I'd like to say that's it. We're done. Because that's probably enough, right, for two weekends. But we're very, very early in the Administration. There's a lot more coming. You may or may not have read the America First Trade Policy. I did read it. It basically is a roadmap to what's coming around the pike. And his trade advisor, Peter Navarro, said as much. So I'll just go through this real quick.

What do we have? The Administration has issued a number of studies-- not just studies, but recommendations to fix problems, if identified, and you can assume that they'll probably be problems identified. Large and persistent trade deficits. Well, we have a lot of those with a lot of economies. Currency manipulation, and some of those investigations have been going on for a long time.
 
China's implementation of the Phase One agreement, which they arguably didn't do. Revoking permanent normal trade relations for China, which has legislation pending in the US Congress. Export controls, which could be tightened. Discriminatory taxes by the European Union, which could result in taxation policies on top of tariffs against the European Union. Procurement policies. So if you sell to the US government, you may find your ability to sell more constrained.

Every free trade agreement we have will be reviewed, and if deemed unfair, may be reopened, like USMCA. Anti- dumping and countervailing duty laws are going to be reviewed. And I guarantee you, there will be a tightening of those, both in substance and in operation. So if you've ever been subject to an AD/CVD case, they're very expensive and they can hurt your competitiveness.

So they're looking at transnational subsidization, primarily targeted at China, and they're looking at, are respondents actually responding the way they should? So they'll tighten those rules as well. So that's coming. And then just to give you the broader context of thinking about setting up an external revenue service to collect the taxes, the tariffs, that are going to come in from all these different new policies that will come forward.

So that's a lot of stuff. And you're saying, well, how could they do this? And we heard some discussion about executive branch authority, and we can talk about the role of Congress a little bit. David and I both had that privilege. I don't know if you worked there or not.

But really, right now the executive branch has primacy, for sure. They're pushing the boundaries like I've never seen before. There's a number of statutes that Congress passed in the '30s, in the '70s, in the '60s, in the '80s. Never thought once about them. Like, we'll just give the authority to the President because he won't use it like that. It won't be stretched. Well, he is stretching the authority. He is using the authority, and he's using it in an unprecedented way.

So the statute that he used for the 25%, and also to threaten Columbia and Canada and China, was IEEPA. IEEPA is the International Emergencies and Economic Powers Act. It's a very broad statute. No notice and comment. It's used in times of emergency. And literally, there's no limitation, except the courts. The only constraints are the courts, political constraints, and market constraints. How do markets react? So we will see. Beyond that, he can do virtually-- anything I read here could probably be operationalized under IEEPA. So that's your roadmap.

April 1st, the reports are coming in. What could happen between now and April 1st? Well, I think there's going to be a tariff threat on Europe before the end of this month. If you read the tea leaves, that's what I think is going to happen. And candidly, at the end of the day-- and this is a really uplifting part-- no economy is safe, because they're all going to be under scrutiny.

So European Union, Japan, Korea, et al, all subject to review, all likely have some type of a battle. Where does it all land? Regardless, it's going to be tremendously impactful, because one of the things that car companies like to have is money, right? They want investors. They want people to invest in them so they can build new stuff and invest in plants. And if they can't, then they can't make any money. So the more the auto sector is under stress, the more investors think, huh, maybe this isn't where I should put my money. And that could be something that really could hurt over the long run.
 
This is super important. The auto sector is incredibly valuable to the US economy. Almost half of the manufacturing in the United States is done by the auto sector. The supply chains are incredibly integrated. While the big companies may have a lot of cash, or enough cash to ride through a little turmoil, some of the smaller ones don't. And I think, as we see the effects of this policy, there's going to be additional knock-on effects-- like, OK, well, if you need credit lines-- and all kinds of things will come out of the Congress. So there'll be ripple effects throughout the policy debate.

I will say a couple of things that are certain. China is going to continue to rise. There's going to continue to be subsidies. EVs are going to continue to be popular, and more and more popular. The US companies cannot rely on ICE vehicles forever. They cannot rely just on this market. As Dave said, and I totally agree, we have to be globally competitive or we are going to really suffer in this country, in the auto sector. Increasing fragmentation is the name of the game. Integration is over. And that's not just for autos. It's for all types of technology.

How bad could it get? OK, so we talked about the different reasons for having tariffs. Well, Senior Advisor Peter Navarro recently went before a panel in Washington. And he said, the goal really is to eliminate the trade deficit. Trade deficit is $1.2 trillion. That's a big deficit, so that's a lot of tariffs. And it really is to reorient the US economy away from internal funding to external funding, which may or may not be the right thing to do. I'm not the master economist to know that. But I can tell you it ain't going to happen without a lot of disruption, and that's going to be very, very challenging for all of us.

I did want to add-- I'm going to try this and see if it works-- I want to add one letter to Dave's card, and I'm going to call it Policy. So we've got-- and I don't if he saw this or not-- but you got BINGO. But you basically have Banned Irrational New Global Outstanding Policies.

[LAUGHTER]

And maybe that's what we need to do. Thank you all very much. [APPLAUSE]
 
DAVE SCHWIETERT: It's a better bingo card.
 
EVERETT EISSENSTAT: Yeah.
 
KRISTIN DZICZEK: Well, did I get a good panel?

[LAUGHS] [APPLAUSE]

I think I got a good panel. And I'll tell you, in the prep for this, you guys didn't know each other really. I mean, you two kind of did, but these conversations and calls we had to prepare for this were lively and engaging and fun, and I kind of wanted to bring that to you guys.
 
So I'm not going to really play the role of the moderator. I'm going to bring your questions into this discussion, and I'm going to kick things off and keep us moving, but I'm going to let them talk. It also keeps me in my role and in my lane, which is helpful. But I'm going to start with you, Everett, because you did a lot of letters and numbers and things, the IEEPA and 232 and 301, and blah, blah, blah.

I spent my last 15 or so years studying all of those things, and 338 and 201, and oh. IEEPA, can you talk a little bit about how it's been used in the past? It's supposed to be temporary, but the Congressional Research Service has a report on it that some IEEPAs have been in place for 40 years. So is IEEPA just a permanent threat through the next four years over everyone? Or how do you see IEEPA?
 
EVERETT EISSENSTAT: Well, it's a really good question. I think Bridgett probably has some thoughts on IEEPA. I'm sure Dave does as well. But IEEPA, actually, the predecessor statue was the Trading with the Enemy Act, and so that gives you a sense of what the idea is. Well, this is post-World War II legislation. It's like, well, if you have an emergency, the president needs the authority to take economic matters, to move quickly. You can't wait for Congress. So there's a lot of authority granted there.
President Nixon used it on a balance of payments issue, and he imposed a 10% ad valorem duty at that time. And Congress said, whoa, we didn't like that. So they actually meant to constrain it when they put IEEPA into place. It's not really much of a constraint. I mean, it just says, if the president declares a national emergency, he can take actions to address it. And so you could say the border is a national emergency. You could say a trade deficit is a national emergency. Columbia.

So it's really broad and there are not a lot of boundaries. I talked about three potential constraints. Some are legal, some are not. First constraint, legal constraint, will the courts uphold it? We don't know. There's an emerging major question doctrine that's moving through the courts, federal court system. Maybe they'll overturn it. Maybe they would say this is not how it's supposed to be used and put an injunction on it.

Political, uses it in a way that hurts or disturbs the status quo so much that the political environment won't sustain it and Congress starts to push back. And that's the third constraint, is Congress. Will Congress say, wait a minute, this is a little bit beyond the pale, this is too much, and take action? Now, Congress can say, through a joint resolution, no. They can turn it off. Joint resolutions are super hard to pass. So there is a constraint there, but it's not used very often.
 
KRISTIN DZICZEK: And the joint resolution vote is simple majority or supermajority?
 
EVERETT EISSENSTAT: I don't know. I'd have to look.
 
KRISTIN DZICZEK: I think it's supermajority.
 
DAVE SCHWIETERT: You'd need 60.
 
EVERETT EISSENSTAT: Yeah. So that makes it even worse. So 60 in the Senate is never, never easy. And you probably have to go through some procedural time to burn on the floor, and things like that. But you asked how long these have been enforced. So it's used for sanctions, never been used for tariffs before. So yeah, unless one of the constraints occurs, I don't see a lot of limitations. But let me ask my colleagues their view.
 
DAVE SCHWIETERT: I might jump in. I mean, obviously, I like how Everett kind of framed that. If we take a step back, let's remind everybody, there's a very narrow majority on the Republican side in Congress. So even if you had what they call right now a trifecta-- White House is Republican, House of Representatives is Republican, US Senate is Republican-controlled.

But remember, it's a very narrow margin. So this is part of that balancing that Everett was talking about. An IEEPA authority or designation can be issued, but it only works so long as you don't get backlash, whether it's from a court-- which, in recent memory, has actually affirmed the role of the presidency. So in the short-term, that's unlikely to be a resolution.

And then obviously, Congress is willing to allow the President to do certain things for a period of time. But right now, the House of Representatives literally has a one-seat majority. So then it's a question of how much of this pain, whether it's at 25%, 10%, whatever it may be, starts to result in some of these costs getting passed along to constituencies, whether it's the ag sector or otherwise?
 
KRISTIN DZICZEK: And the ag sector is really important because we did see Senator Grassley raise his hand and say, potash is important to my farmers. You have to exempt that from these 25%.
 
DAVE SCHWIETERT: Yeah.
 
KRISTIN DZICZEK: Like if you start getting into transactional stuff on each item, then you don't have a broad 25% tariff.
 
DAVE SCHWIETERT: Yeah. And it's important. The ag sector right now, commodity prices aren't so great, so there's not much of a margin there. This is one thing, as you were walking through your presentation, Everett, that I took note of, is let's remember the President using IEEPA authority-- which, of course, is a new acronym-- works for a period of time. But at the same time, this IEEPA authority was triggered for two main causes-- to your point, earlier, when the President says something, he follows through with it-- border security and drug trafficking. The IEEPA authority was based on those two primary goals and objectives, which fits a national security concern.
So would that be judiciable if a court was to hear that case? Well, the President, Chief Executive has an inherent authority. My point with this is that now we've kind of taken an interesting turn. IEEPA authority, for purposes of drug trafficking and border crossings, not just at our Southern border, but our northern border-- but now, over the next 30 days, it's turned into almost a negotiation related to broader tariffs, or trying to rebalance things. So to Everett's point earlier, this is a mechanism to realize some potential broader impacts, knowing that IEEPA really is more of a national security focus.
 
KRISTIN DZICZEK: And remember, Canada is a Southern border here in Detroit.

[LAUGHTER]
 
EVERETT EISSENSTAT: That's actually a really good point. I had forgotten that. You were born--
 
KRISTIN DZICZEK: Born and raised in South Detroit, Windsor.
 
EVERETT EISSENSTAT: That's right.
 
BRIDGETT DOOLING: And I'll just add on this question of a president's emergency authorities. IEEPA is one of several dozen statutes that gives the president-- that allows the president to unlock special authorities upon a certain designation. So there's a whole set of these in the public health context, for example, in the national security context, too.
So if you want to start getting smart about this general topic of the president's emergency authorities, the Brennan Center has rounded up all these statutes and put them into one report. And so that's a really nice snapshot of all the different kinds of emergency authorities that Congress has given to the president over many decades. And they've also documented how these are going in practice, and flagged some pretty significant concerns about the extent to which these authorities really hand over a significant amount of unchecked power.

And again, remember, this is not unchecked power to a Republican or a Democrat, but just handing it to the presidency, in general. So one of the things that we could see coming out of a Trump second term is Congress sort of resetting the boundaries, at some point, on how much authority presidents are entitled to in the context of something that they can frame as an emergency, right?

Because that is the type of malleable standard. I think you can all probably intuitively understand why the nature of an emergency can be in the eye of a beholder. And if you allow a president to claim an emergency for things where their clear policy motivation is unrelated to the emergency that they've claimed-- for example, with respect to drug policy or immigration-- but they seem to be actually trying to pursue some larger goal, like readjusting the trade deficit, this starts to put strain on the extent to which that emergency is being invoked as a pretext. And so again, we have dozens of these statutes that have given the presidents authority with emergency powers.
 
EVERETT EISSENSTAT: Can I add one point there?
 
BRIDGETT DOOLING: Yeah.
 
EVERETT EISSENSTAT: Because I totally agree, and it's important to bring that bigger picture perspective. There are so many laws on the books that are not used to their full extent that Congress has never overturned. There are regulations that have been sitting out there that nobody pays attention to.

And I do think, at some point, that Congress is going to have to step up. We're an old democracy. We're going on 250 years now. That's a lot of stuff on the books. Maybe we should take a look at it and think, is all this really what we want? Is this serving today's purpose? And I think we'd find that it's not, and there's a lot we can do to fix it. So Congress will have to get involved. Otherwise, it's just going to continue to evolve and evolve and evolve.
 
KRISTIN DZICZEK: So one of the things that came up in every one of our calls was reconciliation, which Dave touched on. What do you think the automotive stakes are in reconciliation?
 
DAVE SCHWIETERT: All right, well, I'll maybe start, knowing that others will have some thoughts. So again, reconciliation, that's effectively, probably, in my opinion, the biggest legislative effort that's going to be undertaken.
 
KRISTIN DZICZEK: Can you remind everyone what that means?
 
DAVE SCHWIETERT: Sure.
 
KRISTIN DZICZEK: See, I don't have to moderate. This is great.

[LAUGHTER]
 
DAVE SCHWIETERT: Bridgett actually referenced--
 
KRISTIN DZICZEK: It's professor problems. You know, professor problems.

[LAUGHTER]
 
DAVE SCHWIETERT: So there was three, I think-- not to speak for you-- there was three successes or victories that you noted in the first Trump Administration. Tax reform, right? Biggest tax reform bill passed in 2007. Reg reform. Regardless of whether you agree with 2-for-1 or not, it was a huge signal to not just major industries, but going from the Obama Administration to the Trump Administration, it was almost like this weight that was lifted related to overarching things, everything from Waters of the United States that was impeding construction and other projects to a host of other regulatory policies.

And then third, why am I blanking on it?
 
KRISTIN DZICZEK: Judges.
 
DAVE SCHWIETERT: Yeah. I mean, the judicial legacy as it relates to Republican nominees. So the reason reconciliation is so important is it's a way-- just like something that you may have heard of before, IRA. The Inflation Reduction Act was a signature accomplishment of the Biden Administration. Well, how did President Biden and a Republican or a Democratic Congress pass it? They passed it through budget reconciliation, which is effectively a fast-pass process that allows you-- when you control the White House, the House of Representatives and the US Senate-- to effectively move legislative measures with a simple majority vote.

The Inflation Reduction Act was passed in 2022 with the tie-break vote in the US Senate by the Vice President, which then enabled House Speaker Pelosi and others to get that bill to the President, and he signed it into law. Hit one of his signature achievements. So now we have, after this past November election, a Republican trifecta again.

Well, that enables the President, along with the Republican Congress, to do what? Pass things with a simple majority vote. So they can use a fast-pass process to effectively pass things. It doesn't give them free reign as it relates to legislative policy. They've got to pass a number of budgetary thresholds. But my point with this is that it's going to be a way for Trump to create another legacy related to his signature accomplishment in the first term, which was tax reform and lowering tax rates.

The corporate rates were set to exist in perpetuity, but the personal rates effectively reset at the end of this calendar year. So that's created the imperative of this Republican trifecta to effectively focus their energies and attentions. So Kristin, your underlying question is, what's at stake for the auto sector, potentially, in budget reconciliation? Well, all of those things that were included in one way, shape, or form-- under the tax code related to Build Back Better or the Inflation Reduction Act, the Green New Deal, however you want to couch it-- whether it's manufacturing incentives that enable US investments that effectively do a whole host of things, renewable or otherwise--

So this is battery. This is solar. This is wind. This is also incentivizing consumer credits for purchasing electrified vehicles, something known as the Section 30D tax credit, and also other incentives for leasing and those type of things. So all of that could potentially be in play.

And you could say, well, Dave, why is that important? Is this just, well, they're just trying to reverse something that no Republican voted for in the previous Administration? Well, that's part of it. But the second part of it, with budget reconciliation is for Congress to pass a bill, it has to be revenue-neutral over a 10-year budget window. So they effectively need money or pay-fors to justify and pay for anything they change by extending the personal rates, potentially lowering the corporate rates. Anything that they put in that budget reconciliation package effectively has to balance out over a 10-year period.

So therefore, things like the Inflation Reduction Act, or Biden policies from the previous Administration, now become almost like a piggy bank, because Republicans who didn't vote for any of that can say, well, I want to end that, and if I end it, I can carry over that money on the balance sheet. That effectively allows me to do my most important task right now, which is tax reform, or making sure that individuals don't see higher tax rates. So that's my--
 
KRISTIN DZICZEK: So is it big enough? That's the big question. Is canceling the IRA big enough to outweigh 10 years of tax cuts?
 
DAVE SCHWIETERT: No. And I'm going to leave you with two things because I know Bridgett and Everett may want to speak to this. Just for baselining purposes, to extend the tax bill that was passed in 2017, when it expires, would cost roughly

$4 trillion. Let's just use a round number. Ending the IRA wouldn't cover a quarter of that. So just to answer your question, that presumes you repeal all of it, which nobody, generally in the auto industry, is asking for.

Because remember how I said, this is a short game, a medium game, or a long game? How are we competing with China? China has 30 million vehicle production capacity-- or sorry, production values right now. 50 million in capacity. It's twice the US market. So if we're going to potentially revisit or eliminate certain incentives that are requiring or allowing onshoring-- or attracting investment, the $180 billion that Kristin talked about-- and we undo that, we turn that investment horizon upside down as it relates to how the US is ultimately competitive.

My last point on this-- I'm channeling Pete. Let's look from the auto sales standpoint. Right now, for electrified vehicles, whether it's plug-in or battery electric, they're eligible for up to $7,500 for a lease incentive, which is lowering the cost of that out-of-pocket lease today. And they're also enabling people to get that as a personal tax credit or it gets passed along from the dealership under 30D.

So I'm not an economist, but I know, generally, if the government wants more of something, you incent it. So does anybody want to guess how many electrified vehicles are currently for sale in the US, all models? There's 71 battery electric vehicles. There's 51 plug-in hybrids, roughly 125 models out there. Anybody want to guess how many are eligible under the 30D IRA tax credit as of January 15th?
 
AUDIENCE: Two.

DAVE SCHWIETERT: Close. It's 15.
 
KRISTIN DZICZEK: So this is threading the needle of it has to have this much content. It can't come from China. It has to be assembled in this place, all the rules that were meant to make those US-built EVs, or North American built EVs.
 
DAVE SCHWIETERT: So the reason I'm raising this-- and you might remember back to the bingo card and the charts and my card tricks here. And he's probably saying, yeah, that's right, that's kind of right. But my point here is if the trendline is carbon reduction or increased electrification to meet compliance, that only works so long as you have consumer viability, incentives, affordability.

So if we pull back some of these provisions from the previous tax IRA measure, it calls into question the whole regulatory apparatus that justified those standards in being finalized last year. So again, this is part of why a lot of this is going to be revisited under the Trump Administration. But if certain incentives go away, how do we make sure that the US is competitive, not just today, but tomorrow? And we haven't even factored in everything that Everett talked about, which is the supply chains and tariffs.

So remember, back in January of 2022-- folks might remember this in this room-- the President gave a State of the Union Speech. And this is during the height of COVID. And he said-- and this will ring true, I think, with folks here at the Federal Reserve and elsewhere-- over 1/3 of the inflationary impacts in the US at the time were related to what? Automobile sales.
 
Because the prices had risen close to $50,000, on average. So a third of the US inflationary effect was from one sector because of auto inputs. In an environment of scarcity with semiconductor shortages and other things, demand was high, inventory was low. But this, I think, is a cautionary reminder of what can happen if tariffs are assessed and it starts disrupting supply chains.

It doesn't mean that people don't want to make and build things in the US and North America. However, there are cost impacts that could effectively work against consumer interests, work against business interests, work against manufacturing interests. Because, again, if the average age of a vehicle is 12.7 years and rising, the regulatory requirements from California, the federal government all continue to increase, at some point, the consumer is priced out of the market, which is why things are really high right now on average transaction prices for new vehicles and used vehicles.

So I'm just trying to stitch all of this together with some of the slides in the discussion because all of this is interrelated. There is no silver bullet to ensure not just the strength, but the viability of the US manufacturing sector in the auto space, unless we look at the overlap of how all of these things integrate. And you can't just come in and say, I'm going to assess a tariff and that's going to solve everything, because it might take three to five to 10 years, if at all, to resolve that issue.
 
KRISTIN DZICZEK: And it may invoke retaliatory measures. So I want to bring up and ask Everett about-- the China tariffs did go on, the 10%. China's retaliation was export controls on critical minerals.
 
EVERETT EISSENSTAT: Yeah, which are necessary to do much of the production here in the United States.
 
KRISTIN DZICZEK: Right. And even if we pulled the critical minerals out of the ground here, many of them we send to China to process.
 
EVERETT EISSENSTAT: Exactly.
 
KRISTIN DZICZEK: Because we don't have processing and refining capability that they have. So there's this weird trade thing there. Rocks are where rocks are, but processing and refining happens largely in China. So they've put this export control.
 
EVERETT EISSENSTAT: Yeah. This is one of the great things about the industry, it never stops. You can start any conversation with this and you'll get all the way over here because there's just one long, continuous effect all the way through, all the way to the consumer. Even the youth sales, even residual value, it just goes on.
But your point in reconciliation, just you may not have heard enough. There's more. Because now there's a huge gap in how much money they need to pay for even keeping the existing tax cuts in place. And there's not enough growth in the economy to pay for it, so you've got a huge gap. So where are they going to get the money? They could take away spending, like Dave said.

Or tariffs are out there. Maybe we could get some revenue from tariffs. And that's what scares me the most. If tariffs become revenue, if they become a true external revenue service, they become permanent. And the last time Congress really got involved with tariffs was Smoot-Hawley. And if you don't know about it, you might just look it up on your way home. Don't do it while you're driving. Do it when you get home.
 
KRISTIN DZICZEK: 1930s.
 
EVERETT EISSENSTAT: 1930s. Didn't end well. But we talked about Congress. Like let's say Trump comes and the Democrats win in two years. A lot of this gets constrained by political forces, or not. Or maybe the Republicans push back. Or he loses in four years and you get someone, an Obama or a Biden, or who knows who, who comes in with a whole new set of policies.
 
KRISTIN DZICZEK: Well, he's not running again in four years.
 
EVERETT EISSENSTAT: True. Someone like Biden. Durable trade policy is made by Congress. So if Congress uses reconciliation to raise tariff rates, those are not going to get unwound. You're not going to have what you had this weekend, where an executive order all of a sudden takes them off. They're there. It's a tax.
 
KRISTIN DZICZEK: Chicken tax.
 
EVERETT EISSENSTAT: It stays. Yeah, chicken tax is a perfect example.
 
KRISTIN DZICZEK: Almost as old as me.
 
EVERETT EISSENSTAT: Yeah.
 
KRISTIN DZICZEK: [LAUGHS] So.
 
EVERETT EISSENSTAT: And I wonder how many people know what the chicken tax is. There's 1, 2. Oh, everybody knows.
 
BRIDGETT DOOLING: A lot of people. A lot of people here know chicken tax.
 
EVERETT EISSENSTAT: Yeah, that's a good one.
 
BRIDGETT DOOLING: Yeah.
 
DAVE SCHWIETERT: But Everett, maybe just to pull on this thread, let's remember. Right now, the focus of the Administration might be squarely on tariffs. He's trying to assemble his Cabinet to execute on other policy agendas. So there's a lot going on. It's kind of shock and awe. But I would love a better understanding.
 
Like how can you simultaneously, effectively either threaten tariffs to negotiate better trade deals-- and that's all well and good. But at what point are you trying to effectively meet the goal from the election, which is to help the consumer help grow the economy? I mean, obviously there's an inflationary effect. So this is kind of that push- pull between tariffs might be a benefit on the revenue side, but at the same time, it might also raise prices and that might actually negate some of the Administration's goals of reducing cost to consumers. So I don't how you balance that.

KRISTIN DZICZEK: And that's an important part, I think, from going back to what you said, Dave, is that this bill has to be revenue- neutral. It also has to have all of the offsets in the bill. So it can't say, I'm raising tariffs with IEEPA over here, and I'm going to use that money, use that piggy bank, to offset these tax cuts. It has to all be in the bill. So that means every member of Congress has to vote for tariffs, including on potash from Canada, and all of the special interests and products that all of the members of Congress will have. And then they go back to their districts, and what happens?

DAVE SCHWIETERT: Well, this is the point that I think you're connecting the dots, because you're right. Like right now, everything's playing out unilaterally through the White House, through directives or executive orders. He's indicating a certain path related to using IEEPA to trigger a certain degree of tariff rate. But right now, Congress is just sitting back watching, and Republicans, in particular, to see what the ramifications are. But right now they don't have any culpability or ownership.
But your point, if they were to suggest putting in the law-- which would be unprecedented, that Congress would be saying, let's increase a tariff and putting it in the law-- I'm not even sure how they would get credit for that. Because I don't know whether it's the Congressional Budget Office or the Joint Committee on Taxation, how they would evaluate the durable nature of something that's assessed today. It might be fleeting. It might be--
 
KRISTIN DZICZEK: Well, Biden already asked for that.
 
DAVE SCHWIETERT: Yeah. And the revenue estimates-- I don't know if you want to speak to this-- came in pretty weak because they might assess the tariff as a revenue raiser for a period of time, but then they won't give any credit in future years, saying, well, at some point, it's just not going to be effective anymore. It has to go away.
 
EVERETT EISSENSTAT: Well, and what scares me a bit on that kind of an exercise, or even some of the other ideas out there, is that circumstances matter. And so PNTR, the bill to revoke permanent normal trade relations from China, which would be a statutory increase on tariffs-- not what we have now, which is an executive order. Not an executive order, a 301 finding that is now raised the tariffs.

To make it permanent, they could take away PNTR. Everyone's like, well, that's not going to happen. I mean, there's support out there for it. But if something external happens, a circumstance happens, and let's say you combine it with a need for revenue, and China does something that's really antagonistic, I could see that thing passing like that.
 
KRISTIN DZICZEK: Bridgett, you wanted to jump in?
 
BRIDGETT DOOLING: I was actually just gesticulating. But I think the larger-- I'm sort of like, aren't we all? I think the larger takeaway here is that, like trying to generally pull your perspective back, whatever type of decisions you're responsible for and whoever you are trying to advise about how to navigate where we are in time, you must-- and I imagine you know this intuitively-- but you must pay attention to these larger dynamics, because everything we're talking about is so interconnected that you must have your eye on this ball.
 
KRISTIN DZICZEK: I'm going to eat a little bit of the break. We're almost to our time. But I want to wrap up here because we sort of went on-- Dave got us on to fuel economy and greenhouse gas emissions and the global competitiveness and the move of electric vehicles. How do these things come together? So we've got trade policy pulling back the IRA.

We have aggressive-- I shouldn't call it aggressive. We have one set of fuel economy regulations under one president, then they swing back the other way. What is the consequence for the auto industry of all of those things together? And do we become, as one of our questions says, breaking away on our own ICE float?
 
DAVE SCHWIETERT: So we've never faced the ramifications in a more compressed manner than what we're seeing right now. So what I expect to see, when Trump was in office the first term, he revoked California's waiver authority under the Clean Air Act. I have no reason to believe that California, led by Governor Newsom and the California Air Resources Board, is somehow going to sit well with the current President. He articulated, during the election, that he doesn't like an EV mandate, and I think he'll be working quickly to unwind that.

But you can't get rid of it through an executive order. You, effectively, have to start a rulemaking process to take comment. And then it has to be something that can stand up to legal scrutiny, depending on the authority or preemption that is otherwise triggered. So I think the first flashpoint, why it's a B on the bingo card, is because I think that one is going to start pretty quickly.

But then there needs to be high degrees-- and I think this is where you're going with this question-- there has to be high degrees of coordination within the federal government, the Trump Administration, between Cabinet agencies, between the US Department of Transportation, between the US EPA, between the US Department of Energy. So all of those agencies can't just work unilaterally. They have to be coordinated, because those three rules that the Biden Administration finalized last year, effectively, we've done collectively.

So you can't have somebody coming in and reopening one because it will make the other two unworkable. So that's part of, I think, an answer to your question. But beyond that, this is, really, three-dimensional chess. And right now, I'm not sure who within the Administration is, effectively, the quarterback. Or I will loathe to say this, who is the car czar? Who is the quarterback that's effectively coordinating all of this to ensure that it's lasting and durable?
 
KRISTIN DZICZEK: You would know who it was because you're the guy who knows. But if you don't know, then there isn't one. Can we go to Bridgett and then end with Everett?
 
BRIDGETT DOOLING: Yeah, I mean, the word that comes to mind for me is just "uncertainty." It's uncertainty on so many fronts. I mean, we haven't even really popped the lid on talking about labor dynamics, too. I mean, the immigration actions are not just about the blessed souls picking our strawberries for us in California, right? There has been a hostility towards foreign workers of all kinds, especially including those with expert knowledge, the kind of people that you want in your sector.
 
So yeah, there's a lot to chew on. And I think it's good to have fora, like this, where you can be in conversation with each other to be sharing information, because I think that's going to be the best way through, is listening, thinking, and collaborating to find a way through.
 
KRISTIN DZICZEK: Yeah. Bat us home, Everett.
 
EVERETT EISSENSTAT: OK, so I'm going to try this analogy. I was thinking about, how would I characterize a relationship between government and the auto sector? And the only thing I could come up with is parent and child. So it doesn't matter whether it's Republican or Democrat, they love the auto sector. They understand that it's important.
 
KRISTIN DZICZEK: They drive cars. [LAUGHS]
 
EVERETT EISSENSTAT: They drive cars. And they love them so much, they do all this stuff for you, all these ideas about you're going to do EVs, you're going to cut emissions. No, you're not. You're going to build here. You're going to do that. You're not going to do this. You're going to-- I mean, every bit of the supply chain safety, everything, unbelievable the amount of regulation. And the child's like, you know what, dad?-- in my case-- just leave me alone. Just let me do what I need to do to compete and to make good decisions based on what people want-- the best designs, the best quality-- quickly, efficiently, effectively. And let me do what I'm supposed to do, which is serve the transportation needs of this world.

OK, I want that so bad. And I think what Dave said about the Apollo mission is right. I feel like China can do that, this durability, that they can sit there and say, this is our 25-year plan. You don't like it? Too bad. This is what we're doing. It doesn't work that way here.

So what is the one constant? Governments change. What doesn't change? You all don't change. You're constant. So you have got to talk to your members of Congress and let them know-- you don't have to go yell at them. But let them know, this is what I do, and if you do this, this is what it does to me, so they understand the implications and the impacts of the decisions. Because no one else is going to do it for you. So I just want to leave you with that, that the voices matter, and be active. It's not something that has to happen to you. You can impact it. So I hope you all will do that.

KRISTIN DZICZEK:

Thank you. Thank you all, Bridgett, Dave, Everett. This was great. You guys had some great questions. We are going to break, which means you can ask the questions that I didn't get to because this conversation was going. And then we come back. Let's come back-- we're supposed to come back at 2:30. Let's come back at 2:35, And we're going to have a speech from Chicago Fed President Austan Goolsbee.
 
EVERETT EISSENSTAT: Thank you.
 
KRISTIN DZICZEK: Thank you.
 
EVERETT EISSENSTAT: It was good.
 
KRISTIN DZICZEK: Excellent.
 
EVERETT EISSENSTAT: It was great. Yeah, it was fun.