Carmakers rail against steel, aluminum and import tariffs

Keith Laing
The Detroit News
Picture taken at the Port of Veracruz, in Veracruz State, Mexico, on 27 August, 2018. - Mexican President-elect Andres Manuel Lopez Obrador called Monday for a three-way trade deal with the United States and Canada, saying a two-way agreement reached with the US was just a first step. "It's important that Canada also be included," said the leftist president-elect, who takes office on December 1. "The free-trade agreement should remain as it was originally conceived" he told journalists.

Washington — Groups that lobby for carmakers and auto parts suppliers railed on Thursday against the Trump administration's decision to slap tariffs on foreign steel and aluminum, and his threats to impose levies on imported cars.  

Carmakers are disappointed the Trump administration did not lift tariffs on imported steel and aluminum during talks that resulted in the proposed replacement for the North American Free Trade Agreement. Speaking at a public comment hearing the U.S. Mexico Canada Agreement, Jennifer Thomas, vice president of federal government affairs for the Alliance of Automobile Manufacturers, which lobbies for major domestic and foreign-owned carmakers, was blunt.

"The success of both the new USMCA and our nation’s auto sector continue to be undermined by these tariffs," Thomas said. "Over the past year, automakers have witnessed a more than 30 percent increase in domestic steel prices. These steep and unexpected increases in the price of key manufacturing inputs are driving up production costs for all U.S. automakers, threatening our industry’s competitiveness in the global market." 

Thomas noted "several automakers have recently lowered their full-year earnings outlooks due to the increased costs of steel and aluminum." She urged the administration to eliminate the steel and aluminum tariffs prior to the signing of the USMCA.

"This would provide industry much-needed certainty and maintain the region’s competitiveness in the global marketplace," Thomas said.  

Thomas offered tepid support for the USMCA, saying the new agreement "preserves the integrated regional automotive supply chain established throughout North America and has the potential to maintain the competitiveness of the U.S. based auto industry." 

She noted provisions in the new agreement that call for increasing from 62.5 percent to 75 percent the percentage of a car's parts that have to come from the U.S., Canada or Mexico to qualify for duty-free treatment "will likely increase compliance costs and the administrative burden across the entire industry, although the extent will vary among individual companies." 

John Bozzella, CEO of the Association of Global Automakers that represents foreign-based manufacturers, said the auto industry was led to believe the steel and aluminum tariffs that were imposed on Canada and Mexico were going to be removed as part of the negotiations that produced the new trade agreement.

"The fact that they have not yet been removed, and that there is no clear indication if or when they will be – despite new requirements for U.S. automakers regarding purchases of these metals from North American-based mills – is highly disappointing, damaging to the industry and contrary to spirit of these negotiations," Bozzella said. "These tariffs are today raising costs for every automaker in the United States and, we believe, should be removed immediately." 

The Trump administration has floated the possibility of placing a 25 percent tariff on imported vehicles, using the same federal law — Section 232 of the Trade Expansion Act of 1962 — that allowed him to place levies on foreign steel and aluminum under the guise of protecting the country from a national security threat. 

Bozzella said Thursday: "The threat of additional tariffs on autos and auto parts under the Section 232 investigation that Commerce is conducting hangs like a sword over our industry and complicates any assessment of the USMCA. 

"In our view, there is no credible justification for the idea that automotive imports threaten our national security — in fact, the growth of international automakers in the United States during the past quarter century proves otherwise," he said. 

In addition to calling for increasing the percentage of a car's parts that have to come from the U.S., Canada or Mexico to qualify for duty-free treatment, the USMCA also requires that 40-45 percent of an auto's content be made by workers earning at least $16 per hour.

It contains provisions to protect up to 2.6 million cars and $32.4 billion worth of parts imported from Canada and Mexico from tariffs on imported vehicles that are being considered separately by the Trump administration. Vehicles not meeting the requirements would be subject to a 2.5 percent duty.

U.S. Rep. Sander Levin, D-Royal Oak, said the Trump administration's proposed replacement for NAFTA does not do enough to ensure that efforts to boost Mexican wages are going to be effective.   He said projections for wages in Mexico have fallen short of predictions that NAFTA would cause average wages there to climb as much as 16 percent. 

"These predictions missed the mark substantially because there was a failure to fully account for the pervasiveness of Mexico's industrial policy to attract capital by keeping wages at rock-bottom levels through a lack of labor rights," he said. "Instead of converging wages upwards, the trade agreement created the NAFTA paradox: Mexican workers produced more and earned less." 

Levin, who is retiring at the end of the year, cast doubt on whether the Trump administration will be able to win support from the new Democratic majority in the U.S. House of Representatives without major changes to Mexican wage provisions.

"It is my belief," he said, "that without the development of such policy that effectively rectifies the basic flaw in and the major source of controversy over NAFTA 25 years ago, the USMCA will not receive strong support among the new House Democratic majority."

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Twitter: @Keith_Laing