Trump officials weigh 25% tariff on imported cars to force concessions in NAFTA talks

The Trump administration is considering new tariffs on imported cars in a move that trade analysts said was designed to put pressure on Mexico during the final stages of negotiations for a new North American trade deal.

Officials may cite national security grounds to justify a 25% tariff on imported vehicles, a senior administration official said, speaking on the condition of anonymity to discuss internal deliberations. President Trump used the same provision of U.S. trade law in March when he called for tariffs on foreign-made steel and aluminum.

An announcement of a formal investigation into the purported need for such industrial protection could come as soon as Wednesday evening, one industry executive said. Shares of European carmakers fell more than 1% on the news.

Negotiators for the United States, Mexico and Canada remain deadlocked over rules for granting duty-free status to vehicles under a new North American trade deal.

The talks have been underway for more than nine months and appear likely to continue into 2019, Treasury Secretary Steven T. Mnuchin said this week.

The threat to impose an import tax on cars was seen as an attempt to press Mexican officials to accept a U.S. demand for a higher percentage of auto content to be made in American factories.

Talks over a replacement for the 1994 North American Free Trade Agreement among the United States, Mexico and Canada have made limited progress.

Negotiators remain divided on a host of contentious U.S. proposals, including a provision that would require the deal to be formally renewed every five years.

The proposed import tax was seen as an additional pressure point in the negotiations, with Mexico and Canada already scheduled to lose their exemption from Trump’s metals tariffs in little more than a week.

“This has been discussed for some time, which makes me suspect that this is being leaked to put pressure on Mexico during NAFTA and on other parties seeking steel and aluminum exemptions,” said attorney Dan Ujczo of Dickinson Wright.

Initial reaction to the idea of an import tax on cars based on national security needs was unfriendly, with one veteran trade lawyer saying it would prompt “pant-wetting laughter — followed by retaliation” among U.S. trading partners.

Mexico in the past has threatened to retaliate against U.S. trade actions by curtailing purchases of American farm products. Mexicans last year purchased almost $19 billion of American corn, dairy and soybean products.

The provisions of a 1962 trade law, known as Section 232, allow the president to restrict imports that threaten “to impair the national security.”

Under the law, the Commerce Department conducts a months-long review and reports its conclusions to the president. He then determines the final tariff figure, if any.

William Reinsch, a former Clinton administration trade official, said the proposal broke with traditional legal interpretations and would disrupt industry supply chains and probably lead to job losses in the United States and elsewhere.

“Arguing that passenger cars are a national security issue doesn’t pass the laugh test,” he said. “We don’t have a shortage; our companies are not currently in trouble; and there are plenty of alternative sources from reliable allied suppliers. Pursuing that case would make a mockery of the provision.”

A vehicles tariff also would hurt U.S. automakers with operations in Mexico and Canada and other places. The United States imported $192 billion in passenger vehicles last year, with Mexico being the leading source, followed by Canada, Japan and Germany.

An industry group representing several foreign carmakers said the domestic industry did not need protection from competition.

“If these reports are true, it’s a bad day for American consumers,” said John Bozzella, chief executive of Global Automakers, which represents several foreign carmakers.

“To our knowledge, no one is asking for this protection. This path leads inevitably to fewer choices and higher prices for cars and trucks in America.”

The auto industry has been a focus of the president’s. He has complained about the difficulties American carmakers face selling their products abroad, raising the subject with Asian and European allies.

In March, he threatened to hit European carmakers with tariffs if the European Union did not lower barriers to U.S. vehicles. The EU adds 10% to the cost of imported American models, while the United States imposes a levy of 2.5% on most imported cars and 25% on most pickups.

German officials have grown frustrated trying to convince Trump that Germans don’t want to buy from American companies, which specialize in large sport-utility vehicles rather than smaller cars more suited to European lifestyles.

Trump has obsessed over German cars above all others, according to a senior White House official familiar with the talks. Though the president is now driven in an armored black Cadillac limousine known as “the beast,” he has owned various foreign models, including Maybach, Rolls Royce, Mercedes-Benz and McLaren.

The president appears to have previewed the internal debate with an early-morning tweet: “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!”

The proposal was first reported by the Wall Street Journal.