If tariffs are paid for by those exporting products to the US, as Donald Trump consistently claims, why did General Motors say tariffs cost it $US1.1 billion ($1.7 billion) in the June quarter and will cost it even more in the September quarter?

Tariffs effectively wiped a third off GM’s earnings for the quarter, reducing them from $US4.3 billion to $US3.2 billion, as the higher cost of materials and components and the cost of adapting to the new tariff environment hit the company.

Donald Trump’s tariffs are hurting US car giants.Credit: Bloomberg

GM chose to absorb the cost of the tariffs rather than pass them on to its customers – which means that its shareholders, rather than its customers, are the ones hurt. The company’s share price slumped 8.2 per cent after the release of the quarterly result, wiping about $US4.2 billion ($6.4 billion) from its market capitalisation.

Like most of the big auto manufacturers, GM has built global supply chains and global production bases over decades. Last year it imported nearly half the vehicles it sold in the US.

The tariffs – on auto and auto parts imports as well as raw materials such as steel and aluminium – have severely disrupted that model for US manufacturers.

While Trump keeps claiming the US is collecting massive amounts of tariff revenue from other countries’ exporters, the GM experience underscores what almost everyone else has always understood.

US companies are paying the tariffs and facing the dilemma over whether to absorb the costs, to the detriment of their earnings and shareholders, or pass them on to customers via higher prices.

If, as GM has done so far, they take the hit to their own earnings, it may not affect the US inflation rate, but the loss of earnings and the measures they take to try to mitigate the tariffs’ effects will be felt in........

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