A Ball State University economist says President Trump’s trade war with Canada and Mexico will cause economic pain all over North America, and it will especially hurt the Elkhart area’s RV industry.
Ball State economist Michael Hicks says about a third of the parts used to make cars and RVs in the U.S. are imported, so making them will now cost more because of retaliatory tariffs.
"This is a big cost shock to producers of RVs and other auto parts and so that's going to immediately affect the price of RVs, which were just beginning to recover," Hicks says.
Hicks says those higher prices will reduce demand for RVs on both sides of the U.S.-Canadian border, and that will be worsened if a recession takes hold, as is widely expected, since RVs are such a discretionary item for consumers.
In a typical recession, the Federal Reserve can lower interest rates to spur more big-ticket item purchases, but the Fed won’t do that in this case because tariff-caused price hikes aren’t inflationary. Inflation is what the Fed tries to fight.
And Since Canadians are so angry over how Trump has disrespected them – calling them the 51st state and an “unimportant nation” — Canadians will be even less likely to buy U.S.-made RVs.
Hicks says even if Canadians aren’t angry, they’ll see even higher prices on U.S.-made RVs than U.S. consumers if Canada targets RVs with retaliatory tariffs as he expects.
"Canadians now are going to be willing to accept economic pain to get back at the tariffs that we're now experiencing," Hicks says. "My hunch is that we'll see pretty deep tariffs targeted at red states, so any product made in a state that has strong support for President Trump is likely to face tariffs, so that they stop. And I think that's where we're at now, I don't know another way around it."
