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Washington — President Donald Trump's escalating war of words with Canadian Prime Minister Justin Trudeau over tariffs following the G-7 summit is causing jitters in the U.S. auto industry. At least 1 million new-vehicle sales could be lost annuallyif cars built in Canada and Mexico are hit with stiff tariffs, according to one forecast.

Trump has threatened 25 percent tariffs on imported cars. Although details are lacking from a president who can move markets with a single tweet, that presumably would include vehicles built by Detroit manufacturers in places like Windsor and then shipped to the U.S. for sale.

Vehicles built in Canada and Mexico historically have been covered under the North American Free Trade Agreement, but talks about changes to that pact have teetered in recent weeks as the Trump administration has pushed for separate talks with Canada and Mexico.

Jeff Schuster, senior vice president of forecasting at LMC Automotive, which forecasts automotive sales, production and powertrain trends, estimates at least 1 million fewer cars and trucks might be sold annually if cars that have been built duty-free in Canada and Mexico under NAFTA are subjected to a 25 percent tax. 

Schuster said the U.S. auto industry typically has viewed imports as cars that are built outside of the NAFTA nations – the United States, Canada and Mexico. Changing the definition to include Canada and Mexico "hugely expands the exposure and risk" of auto companies to tariffs, he said. 

"It essentially becomes half the market," Schuster said. "It affects every (original equipment manufacturer), every manufacturer except Tesla, because they are the only ones that are building everything in the U.S." 

Schuster said automakers likely would absorb some cost increases caused by increased tariffs, but he said car buyers would feel the bite.

"Five percent might be different," he said. "Twenty-five percent, even if only half of that is passed on, that's still a pretty substantial price increase."  

General Motors Co. said in a statement it is assessing the potential impact of proposed trade and tariff actions, noting the standoff with Canada and Mexico is not occurring in a vacuum. 

"The global automotive supply chain is very complex and integrated," GM said. The company pointed to China tariffs, levies on steel and aluminum, proposed retaliatory actions, NAFTA negotiations and tariffs on autos based on national security threats.

"These actions are inter-related and must be viewed holistically," GM continued. "In the meantime, we’ll continue to engage in discussions with government officials on these issues as we better assess any potential impact."

Fiat Chrysler Automobiles US LLC deferred comment to the Alliance of Automobile Manufacturers, which lobbies for both U.S. and foreign-owned automakers in Washington, and the American Auto Policy Council, which lobbies for domestic manufacturers. The auto alliance declined to comment, and the policy council did not respond to a request for comment. 

Ford Motor Co. also did not respond for comment. 

The number of vehicles facing potential tariffs is huge:

  • GM imported 1,077,865 vehicles built outside the U.S. in 2017, including 322,144 from Canada and 577,630 from Mexico, according to LMC.
  • Fiat Chrysler imported 1,024,734 vehicles, including 448,172 from Canada and 417,660 from Mexico.
  • Ford imported 521,226 vehicles, including 199,117 from Canada and 283,259 from Mexico.

Trade rhetoric

Political observers have noted the different tone Trump has taken with the head of the nation's closest allies than the one he has taken with North Korean leader Kim Jong Un.

"PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, 'US Tariffs were kind of insulting'  and he 'will not be pushed around,'" Trump tweeted on June 9. "Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!" 

Trudeau has promised to match any tariffs that imposed by Trump on Canadian products dollar-for-dollar. "I have made it clear to the president that is not something we relish doing, but it is something that we absolutely will do," Trudeau said of the possibility of instituting retaliatory tariffs in a press conference at the conclusion of the G7 summit. 

“Canadians, we’re polite, we’re reasonable, but we also will not be pushed around,” Trudeau continued. 

Groups that lobby for automakers, dealers and part suppliers have pleaded with the Trump administration to dial down the rhetoric.

"Over the weekend the president said he wants to put the American worker first," said Cody Lusk, president of the American International Automobile Dealers Association, which lobbies for foreign-owned automobile company's U.S. dealerships. "International nameplate dealers are urging him to remember the 577,000 American workers who staff our small businesses and the 130,000 American workers who build international nameplate vehicles in American manufacturing plants.

"We also hope he remembers that tariffs are taxes on consumers, and that Americans bought more than 880,000 international nameplate vehicles last year," he continued. "Those families won’t appreciate a new tax on their next car purchase." 

Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive, said tariffs on cars made in Canada and Mexico could lead to automakers moving production further offshore. 

"If a car manufactured in Canada is going to have to pay the same 25 percent as a car made in China, you might as well make that car in China," he said. "You might as well go to the cheapest place possible if you have to pay the tariff anyway." 

LMC's Schuster said car buyers might turn to used cars in greater numbers if the price of new cars becomes too high.

"The bigger risk to the new-vehicle market is we have a growing used-vehicle market," he said. "(Tariffs) push consumers into nearly new cars, sort of three to four years old, and a lot of those are available because of all the leasing that's gone on." 

Pushing back

Some U.S. lawmakers have attempted limits on the president's ability to order tariffs under a section of federal law that allows the president to impose levies if he determines a national security 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. Trump has floated the idea of doing the same for imported vehicles. Any investigation and implementation could take up to a year, if the example of the metals tariff is any indication. 

A group of 11 U.S. senators lead by Sen. Bob Corker, R-Tenn., whose home state has large Nissan and Volkswagen factories, introduced legislation to require congressional approval of tariffs under Section 232. 

Corker tried unsuccessfully this week to introduce the legislation as an amendment to a National Defense Authorization Act that the Senate has to pass soon. He railed against Republican leaders in the chamber for acquiescing to the president.

"Article I of the Constitution declares that Congress is the determiner on tariffs," Corker said in a fiery speech on the Senate floor Tuesday. "We're the ones that, per the Constitution, have been charged with the ability, actually the responsibility to deal with tariffs, to deal with revenues, and that is our responsibility." 

klaing@detroitnews.com

(202) 662-8735

Twitter: @Keith_Laing

 

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