Trade Cases

Trump Initiates Section 232 Investigation on Auto Imports

Written by Sandy Williams

President Trump has ordered a Section 232 investigation to determine whether imports of automobiles threaten national security interests. The investigation comes on the heels of China’s announcement that it will drop tariffs on imported vehicles from 25 percent to 15 percent and tariffs on autoparts to 6 percent.

The reductions are presumably positive for the U.S. automakers–except that most of the cars General Motors and Ford sell in China are made in China. Foreign-owned automakers that build in the United States will benefit the most from the reduced tariffs, such as BMW and Mercedes-Benz.

IHS Markit’s chief Asia auto analyst James Chao told The New York Times that although the drop is a “significant reduction,” it won’t have much effect on where automakers manufacture vehicles.

China also plans to implement a timetable to permit foreign automakers to own more than a 50 percent share of plants built in China. New-energy vehicle makers, such as Tesla, will be given priority and will be allowed to fully own their factories.

The concession by China was expected to reduce some of the trade tension generated by the Section 232 steel and aluminum tariffs that will take effect June 1. President Trump, however, claimed “big news” is coming to the auto industry.

In a tweet on Wednesday, Trump said, “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 Wall Street Journal and Detroit News reported on Wednesday that the president was considering using Section 232 to impose tariffs of up to 25 percent on imported autos. In a statement the president said, “Core industries such as automobiles and automotive parts are critical to our strength as a nation.”

On Wednesday afternoon, Commerce Secretary Wilbur Ross , acting on instruction from President Trump, initiated a Section 232 investigation to determine whether imports of automobiles and automotive parts are a threat to national security.

Ross said in a Commerce statement, “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry. The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.”

Ross added that the investigation will consider “whether the decline of domestic automobile and automotive parts production threatens to weaken the internal economy of the United States, including by potentially reducing research, development, and jobs for skilled workers in connected vehicle systems, autonomous vehicles, fuel cells, electric motors and storage, advanced manufacturing processes, and other cutting-edge technologies.”

Currently, the U.S. has 2.5 percent tariff on imports of light vehicles and a 25 percent tariff on imports of pick-up trucks.

The move is not likely to be welcomed by Congress, domestic automakers and their parts suppliers, or U.S. dealers that sell foreign-made cars. Ford, GM, and FCA import autos from their plants in worldwide to sell here in the States. The tariffs would become, in effect, a punishment for building anywhere but the U.S., but would be in keeping with the administration’s America First policies.

Including auto parts, as well as finished vehicles, in the Section 232 action would be a serious issue for domestic parts companies, said Washington trade attorney Lewis Leibowitz. “Every car has thousands of parts. If one is not available due to import restrictions, the car cannot be finished. So domestic parts producers will be harmed, as well.”

In a recent White House meeting with auto executives, Trump demanded that more autos be made in the U.S. and that fewer autos should be imported. “So, these are the biggest [automakers] in the world and we’re going to be talking to them. And we want them to build more cars in the United States,” Trump said in the meeting. “And also, build them here and ship them overseas. We’re doing a reverse act, and that’s going to be something, I think, that’s happening, and we see it happening. A lot of it has to do with the great tax cuts and tax incentives that people have been given. And we have other incentives coming.”

John Bozzella, CEO of the Association of Global Automakers, representing U.S. operations of foreign manufacturers, expressed his dismay before the announcement was made: “If these reports are true, it’s a bad day for American consumers. The U.S. auto industry is thriving and growing. Thirteen, soon to be fourteen companies, produced nearly 12 million cars and trucks in America last year. 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 American International Automobile Dealers Association criticized the decision in a statement: “It can’t be repeated enough: Tariffs are taxes. American families who can least afford a 25 percent price increase on vehicles will bear the burden of this tariff,” said AIADA President and CEO Cody Lusk. “America’s 9,600 international nameplate auto franchises and their 577,000 American employees rely on competitively priced products to sustain their businesses and jobs. To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees.”

Sen. Heidi Heitkamp (D-ND) warned on Wednesday about playing fast and loose with the definition of national security. “If that’s how we are going to define national security, we better be careful and aware that the next time they do it on the other side – it’s definitional,” she told Inside U.S. Trade before the announcement was issued. “So, if that’s definitional as national security, someone else is going to raise the same kind of [concern]. What else are you opening this up to in that context?”

Leibowitz agreed with Heitkamp, commenting, “The national security approach will destroy the global trading system unless the WTO steps in to limit it. That may be OK with the administration, but they should articulate what they want to replace it with. So far they have not said.”  

Added Leibowitz, “The WTO will certainly step in, but will the members rally to save it?”

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