Cleveland, Ohio – President Donald Trump is threatening to put large tariffs on cars imported into the United States, a move that has several in the industry scratching their heads.
“I met with Secretary of Commerce Wilbur Ross to discuss the current state of our automobile industry,” Trump said. “I instructed Secretary Ross to consider initiating a Section 232 investigation into imports of automobiles, including trucks, and automotive parts to determine their effects on America’s national security. Core industries such as automobiles and automotive parts are critical to our strength as a Nation.”
The Section 232 process is a piece of national security legislation that allows the president to use tariffs to protect industries needed for national security such as munitions producers. Earlier this year, Trump used that process to place 25% tariffs on imported steel and aluminum, an action that roiled global markets and threatened a global trade war.
Such a review would have to find that the auto industry is critical to U.S. security and that it is in danger from foreign trade. While many lawmakers would argue that the industry is critical, the global nature of automotive production makes it harder to figure out the second criteria.
Even more difficult to parse is the talk of automotive parts. Virtually every car being produced today has global parts. Vehicles made in Japan have safety systems made in Europe and the U.S.; cars built in Mexico have engines from the U.S. made with engine blocks from Canada; cars built by South Korean-owned automakers in Georgia use steel from Asia and glass from Tennessee.
So, a large tariff on parts could drive up the cost of cars made in the U.S., and reciprocal tariffs from other countries could make U.S. built parts less competitive than European or South American components.
“Contrary to the assumption underlying the investigation on import vehicles, the U.S. auto industry is thriving,” said John Bozzella, president and CEO of the Global Automakers trade group, an organization that represents German, Japanese, and Korean automakers in the U.S. “To our knowledge no one is asking for this protection.”
Even pro-tariff groups that oppose free trade were wary of endorsing the potential for new duties on imports.
During his last press conference with the media, outgoing United Auto Workers (UAW) President Dennis Williams acknowledged that Trump’s positions on trade are closer to the union’s views than other Republicans and most Democratic lawmakers. But, he stopped short of endorsing the action.
“We should have been looking at imports a long, long time ago,” Wiliams said. “I do support any time we look at these things.”
However, he added, he declined to endorse the action without seeing details on what products would be hit with tariffs and how that would impact U.S. workers. Large tariffs on Canadian engine blocks, for example, could threaten U.S. jobs machining and finishing engines.
Trump has long made an issue of automotive imports, blaming production in Mexico and imports from overseas for declines in U.S. manufacturing numbers. During the past three years, he has criticized Ford for producing vehicles in Mexico, said Japan is taking advantage of the U.S. market by not buying more American-made cars, and the Germany benefits from open U.S. markets.
However, determining nationality is increasingly difficult in the automotive world. BMW exports more cars from the U.S. than it imports from Germany, Toyota and Honda get the vast majority of their sales from vehicles produced in Ohio and Kentucky, and exports from Mexico have been dropping (mostly because Mexico is a base for car production, and U.S. buyers have instead been opting for SUVs and trucks).
Several news outlets called the action a maneuvering tactic, a ploy to get Mexico to offer more concessions during ongoing talks to renegotiate the North American Free Trade Agreement (NAFTA). The earlier steel and aluminum tariffs are another tool in that negotiating kit as the Commerce Department delayed enforcement of those duties on products from Canada and Mexico, but it could reimpose them during talks.
“If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices,” Bozzella said. “This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners.”
During the 2016 presidential campaign, Trump often discussed the auto industry, promising to strengthen it and create more American jobs by making it harder to import vehicles here.
Before announcing his orders to Ross, Trump hinted that protectionist news was on the way on Twitter.
There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!— Donald J. Trump (@realDonaldTrump) May 23, 2018
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 18 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.