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Trump faces growing storm on car import tariffs at Commerce hearing

Trump threatens tariffs on EU car imports, Bremerhaven, Germany - 15 Jun 2018
SUVs from Range Rover, Mercedes-Benz and BMW are lined up at the port of Bremerhaven in northern Germany. President Trump is threatening a 20% tariff on cars imported from Europe.
(EPA/Shutterstock)
Bloomberg

The procession of industry groups and foreign governments lining up to oppose President Trump’s car tariffs is starting to look like a rush-hour traffic jam.

“The importation of motor-vehicle parts is not a risk to our national security,” Ann Wilson, senior vice president of government affairs of the Motor and Equipment Manufacturers Assn., told a public hearing Thursday on the auto industry. “However, the imposition of tariffs is a risk to our economic security that jeopardizes supplier jobs and investments in the United States.”

The Commerce Department is holding the hearing as it probes whether imports of passenger vehicles imperil U.S. national security. The administration has received extremely limited support for the idea that foreign cars undermine America’s ability to defend itself.

That’s a stark contrast from the U.S. investigation into steel and aluminum imports earlier this year. In that case, American steel producers and steelworker unions lobbied for tariffs, giving Trump political cover to slap duties eventually on foreign shipments.

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“This one is much more of an uphill climb for the administration,” said Edward Alden, a senior fellow and trade expert at the Council on Foreign Relations in Washington. “We’re starting to see the damage from the steel and aluminum tariffs and the various retaliations. The impact of this action is so much larger than those, that the opposition is going to be far better mobilized and far stronger.”

Commerce Secretary Wilbur Ross opened the hearing seeking to dispel the notion that the Trump administration has made up its mind. His department received nearly 2,300 written submissions from industry groups, unions, foreign governments and individuals commenting on the investigation. The head of one major carmakers’ trade group said only three substantive comments supported tariffs.

“It’s clearly too early now to say if this investigation will ultimately result in a Section 232 recommendation on national security grounds, as we did earlier with steel and aluminum,” Ross said. “But President Trump does understand how indispensable the U.S. automobile industry is.”

The stakes are high for the world economy and the global auto industry. In recent weeks, investors have been focused on the potential impact of U.S. tariffs on Chinese imports. But tariffs on car imports could do even more damage — more than double the amount of all other U.S. tariffs already implemented or proposed, according to the International Monetary Fund.

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A U.S. assault on foreign cars would further strain relations with allies such as Germany and Canada as Trump questions pillars of the Western order such as the Group of 7 and NATO. The president is scheduled to meet European Commission President Jean-Claude Juncker next week as Europe pushes for a global deal to cut auto tariffs.

The European Union is preparing a new list of American goods to hit with protective measures if Juncker’s mission to Washington fails to persuade Trump to forego tariffs on cars. The bloc may target American goods worth about 20% of the U.S. action, according to two officials with knowledge of the deliberations.

With midterm elections in Congress looming in November, members of Trump’s own Republican Party are pleading with him to avoid duties on cars. In a letter released Wednesday, 149 lawmakers from both parties urged the administration to drop the car probe, arguing that imports don’t pose a security risk.

None of this may deter the president. Last month, Trump threatened to slap tariffs of 20% on all cars coming into the United States from the European Union. On a trip overseas last week, the president called the EU a “foe” on trade issues. His latest criticism of the EU came Thursday.

“The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!” Trump tweeted on Thursday.

An auto-trade war would be a body blow to automakers such as General Motors Co. and Toyota Motor Corp., which have fine-tuned their supply chains to take advantage of countries with low duties, such as the United States. America’s trade in cars and car parts with the rest of the world amounted to more than $470 billion last year. The nation imported about $135 billion more in passenger cars than exported.

Industry groups are stepping up efforts to sway the president. This week, a coalition of groups representing most major automakers said in an open letter to Trump that duties on cars and car parts “would be a massive tax on consumers who buy or service their vehicles — whether imported or domestically produced.”

“These higher costs will inevitably lead to declining sales and the loss of American jobs, as well as increasing vehicle service and repair costs that may result in consumers delaying critical vehicle maintenance,” the group said.

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Commerce has until February next year to report its findings to Trump, who has the final say on any tariffs. The probe covers imports of automobiles, including SUVs, vans and light trucks, and auto parts. The administration is reviewing the security impact under section 232 of the 1962 Trade Expansion Act, the same provision the president used to impose steel and aluminum tariffs.

Speakers representing more than 40 auto-industry groups and foreign governments are scheduled to speak Thursday at the Commerce Department, including the American Automotive Policy Council and the European Union. Based on reviews of their submissions and interviews, few appeared prepared to support car tariffs.

“As far as we know, no U.S. automaker or parts manufacturer has been clamoring for relief,” Philipp Schramm, chief financial officer of Webasto, which makes sunroofs and other car parts, said in a submission last month on the investigation. “The auto industry has been thriving in recent years and such action, adding to market uncertainty, will certainly reverberate strongly and have negative consequences for long-term industry growth and recovery.”

Among the more supportive written comments were from the United Auto Workers. It said an investigation of manufacturing losses in the United States and their effect on security and economic strength was “long overdue.” Offshoring has hurt workers and begun to erode the technological advantage that the United States has long enjoyed, the union wrote. Yet it called for “targeted measures” to strengthen U.S. manufacturing, stopping short of advocating in favor of new vehicle and component tariffs.

“We caution that any rash actions could have unforeseen consequences, including mass layoffs for American workers,” the UAW wrote.

GM said in a submission that it would face a stark choice if Trump goes ahead with tariffs: increase prices for consumers and hurt sales, or swallow the tariff cost and move plants. Either way, it would mean job cuts and lower wages for employees, and “a smaller GM” with “a reduced presence at home and abroad,” the biggest U.S. automaker said.

Mayeda and Beene write for Bloomberg.


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