Auto industry scrambles to make sense of import tariff proposal

Keith Laing
The Detroit News
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Brand new cars sit in a lot at the Auto Warehousing Company near the Port of Richmond on May 24, 2018 in Richmond, California.  U.S. president Donald Trump is threatening to impose heavy tariffs on auto imports and has directed Commerce secretary Wilbur Ross to look into and determine if auto imports could be considered a national security threat and if it would be possible to bypass congress and take unilateral action under section 232 of the Trade Expansion Act of 1962.

Washington — The auto industry is scrambling to make sense of a proposal from President Donald Trump to study whether tariffs as high as 25 percent should be levied on imported cars and trucks in the name of national security.

Automakers, industry groups and foreign governments have formed a united front to denounce and oppose the president's proposed levies on foreign-made vehicles and parts – a sweeping move that could drive costs higher for the industry and prices higher for consumers. A prominent exception is the United Auto Workers, but even its leader hedges his praise.

"I thought that we should be looking at imports a long, long time ago," UAW President Dennis Williams said Thursday at Solidarity House in Detroit. "I’m not going to say I’m 100 percent behind it, because I don’t know what all the mechanics are."

Groups that lobby for automakers in Washington said Thursday that imposing tariffs on imported vehicles would be fraught with even more complications than penalizing aluminum and steel imports.

The president requested late Wednesday that Commerce Secretary Wilbur Ross launch an investigation of the national security impact of allowing imported cars to come into the U.S. citing a section of federal law that allows the president to impose tariffs if he determines a threat exists. 

The process, known as a Section 232 investigation in reference a trade law passed in 1962, was used recently by the Trump administration to propose tariffs on imported aluminum and steel. Any investigation and implementation could take up to a year, if the example of the metals tariff is any indication. 

The Alliance of Automobile Manufacturers, which lobbies for both U.S. and foreign-owned automakers in Washington, questioned any threat to national security. 

"We are confident that vehicle imports do not pose a national security risk to the U.S.," the group said in a statement. "Last year, 13 domestic and international automakers manufactured nearly 12 million vehicles in the U.S.... We urge the Administration to support policies that remove barriers to free trade and we will continue to work with them and provide input to achieve that goal.”  

Fiat Chrysler Automobiles NV, Ford Motor Co. and General Motors Co. deferred comment to the Alliance.

The dealmaker president might have more than national security on his mind, believes  Kristin Dziczek, an industry, labor and economics analyst for the Center for Automotive Research.

"I think this is posturing to put pressure on Canada and Mexico to agree with what the U.S. has on the table in NAFTA talks," she said. "The U.S. has been very adamant about having a much higher regional value content."

Negotiators want to increase the minimum percentage of a car’s parts that must be made in the U.S. in order to escape financial penalties when the vehicle is imported from Mexico or Canada. Both countries have balked at the proposals.

For GM, building the Chevrolet Silverado and GMC Sierra in Mexico avoids the 25 percent tariff slapped on pickup truck imports into the U.S., a move that centralized virtually all pickup production in North America. Ford and Fiat Chrysler also have a handful of plants in Mexico, and Fiat Chrysler builds its Chrysler Pacifica in Canada. 

It's not clear whether those vehicles or other built in Canada or Mexico would be subject to the latest tariffs being floated. Those countries account for a majority  –  87 percent – of the Big Three's foreign imports. 

U.S. car buyers would pay the price for any added tariffs, said John Bozzella, CEO of the Association of Global Automakers, a group that represents foreign-based manufacturers. "Consumers will take the first hit in the front of higher prices, fewer choices, less advanced technology and less advanced features."

"I'm not sure who is asking for this," Bozzella added. "This is very different than steel and aluminum, where you had ailing companies and an ailing industry asking for protection."

U.S. Chamber of Commerce President and CEO Thomas Donohue did not hold back in his condemnation.

"If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war," he said in a statement. “This isn’t about national security. The administration has already signaled its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the European Union and South Korea. These allies provide nearly all U.S. auto imports and are among America’s closest partners. Neither they nor these imports endanger our national security in any way."

Leaders from three auto-producing allies of the United States – Germany, Japan and South Korea – rebuked the president.

European Commission Vice-President Jyrki Katainen said Thursday that unilateral tariffs would be a violation of the rules of the World Trade Organization, which Trump has labeled "a disaster for this country." 

Bernard Mattes, head of the German Association of the Automotive Industry, said his country is  "watching the current development closely and with concern."

Any such tariffs would prompt retribution from countries that are typically reliable trade partners for the U.S., believes Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive.

"There will be retaliation," he said. "Our Japanese and European trading partners are not going to just sit and let this happen."

He noted that international automakers with production facilities in the U.S. are based in states like Alabama, Georgia, Indiana and Ohio –  which all helped deliver the presidency for Trump. He predicted that foreign automakers will lean on their senators and U.S. House members to push back strongly: "Many congressmen are going to hear from their local auto dealers, as well as the manufacturers of the importance of these plants, which employ thousands of people."

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