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Trump uses hammer of tariffs as 1st move in trade negotiations

Keith Laing
The Detroit News
A Volkswagen Beetle at the Washington  Auto Show has a message for politicians in the nation's capital.

Washington — President Donald Trump inched closer Friday to placing tariffs as high as 25% on imported cars under the guise of protecting national security, leaning into a tough-on-trade persona he sees as helping him politically. 

At the same time, Trump agreed Friday to lift tariffs on Canadian and Mexican steel and aluminum that have been in place for a year, in favor of stronger enforcement. It's part of a bid to win support for the proposed replacement for the North American Free Trade Agreement, known as the U.S. Mexico Canada Agreement.

The twin moves reveal a president who uses the hammer of tariffs as a first move in trade negotiations, much to the dismay of some domestic industries, including carmakers.

In the latest sign of the strategy, the White House confirmed Friday the U.S. Commerce Department has concluded imported vehicles and parts from Europe, Japan and other nations are a national security threat, clearing the way for tariffs as high as 25% under a section of federal law that allows the president to unilaterally impose duties to protect the nation from security threats. 

The White House said Trump, who declared "I am Tariff Man" in a December 2018 tweet, signed a proclamation that directs U.S. Trade Representative Robert Lighthizer "to negotiate agreements to address the national security threat, which is causing harm to the American automobile industry" within 180 days. Absent such agreements, the White House said Trump will determine whether and what further action needs to be taken.

"He wants to put the bullet in the gun, put the gun on the table and start talking," Kristin Dziczek, vice president of the Center for Automotive Research, told a Michigan legislative panel Friday in Lansing. "And if things don’t go so well, he’s going to pick up the gun and put on the tariffs."

The Center for Automotive Research has said the price of imported vehicles would go up an average of $3,700 if 25% tariffs are imposed. The average price of a U.S.-built car would increase $1,900 due to tariffs on imported parts.

The confirmation of the Commerce Department's findings is the culmination of months of concern by domestic and foreign-owned automakers who argued vehemently against such a declaration. 

"Everybody in this industry is opposed to this action," John Bozzella, CEO of the Association of Global Automakers, which lobbies for foreign-owned automakers in Washington, said in an interview with The Detroit News. 

"You can't find anybody in this big, broad industry who is in favor of this action," Bozzella continued. "This is not about 'Gee, this is a concern for international manufacturers.'" 

The president framed the investigation into the national security impact of imported vehicles as a bid to protect American auto workers, who may be crucial to his success in industrial Midwest states like Michigan in his 2020 re-election bid. 

 "The rapid application of commercial breakthroughs in automobile technology is necessary for the United States to retain competitive military advantage and meet new defense requirements," Trump said in the proclamation.

Bozzella said high tariffs on imported vehicles and parts would harm the entire U.S. auto industry

"More than half the vehicles purchased in the U.S. have international nameplates," he said. "Half the vehicles built here by American workers are the result of international investment."

Bozella pointed to Honda Motor Co.'s investment in GM's San Francisco-based GM Cruise LLC as an example. Honda is investing $2.75 billion in Cruise to co-develop a new autonomous vehicle.

"That's a U.S.-based innovator developing self-driving technology," he said. "That's how this industry works."

Bozzella noted Trump could have ruled out new tariffs on imports completely, but instead opted for a only short-term reprieve. He said of the president's reliance on tariffs in trade negotiations: "This strategy has consequences. That consequence is significant pain for American consumers and significant pain for automakers." 

The Alliance of Automobile Manufacturers, which lobbies for domestic and foreign-owned car manufacturers in Washington, agreed, saying in a statement that "by boosting car prices across the board and driving up car repair and maintenance costs, tariffs are essentially a massive tax on consumers." 

Most popular models from foreign-owned automakers are built by U.S. workers at plants in the southeastern U.S., where labor laws are more lax and the United Auto Workers union has struggled to a gain a foothold.

The top-selling car imported to the U.S., the Subaru Forester compact SUV, is built in Japan. A 25% tariff would mean the base price would effectively increase from $24,295 to $30,368 if the manufacturer didn't shoulder any of the difference. More likely, the added cost of the Forester — and the Japan-built Impreza and Crosstrek — would be spread across the lineup. Subaru sold 171,613 Foresters in the U.S. in 2018.

Porsche would also be hit hard. Its top-selling vehicle, the German-built Macan compact SUV, would see its effective base price rise from $49,900 to $62,375 under the same scenario. Porsche sold more than 23,500 Macans in the U.S. last year. Under its current production setup with all vehicles built in Germany and Slovakia, every vehicle in the Porsche lineup would be subject to tariffs.

Toyota rebuked the national-security proclamation by the U.S. government. In a strongly worded statement, the Japanese automaker called it "a major setback for American consumers, workers and the auto industry," and said it "sends a message to Toyota that our investments are not welcomed, and the contributions from each of our employees across America are not valued."

Toyota said it directly and indirectly employs over 475,000 in the U.S. across its research and development centers, 10 manufacturing plants, 1,500 dealers, supply chains and other operations. It said it has invested over $60 billion in the United States.

Domestic carmakers have fretted about the possibility of retaliatory tariffs on exports of their products.

The president has sought to downplay trade-war fears, arguing the U.S. is collecting more money from tariffs than it has in years.

That has done little to sway American farmers who have been hit hard by retaliatory tariffs China imposed on imports of soybeans, pork and other agricultural products.

The president's argument does not appear to be holding sway with many lawmakers. Even several of Trump's fellow Republicans in Congress have expressed dismay about the president's tariffs-first, negotiate-later strategy. 

“He believes in tariffs as a tool to get a negotiation as opposed to being an end in themselves," U.S Sen. Chuck Grassley, R-Iowa, chairman of the U.S. Senate Finance Committee, said in an interview with Capitol Hill newspaper Politico. "If he has used tariffs because he believes they're good, and I know he says that, but I don't believe he actually believes that. I don't see how he could believe it.”

Washington-based Republican strategist John Feehery said protectionist stances have played well politically in the past for Trump, and he predicted it would help the president again in 2020. 

"I think standing up to China is a powerful political argument for President Trump, and it takes away a key talking point of Democrats who traditionally have argued against free markets and for protectionism," he said. 

Adrian Hemond, a Democratic strategist with the bipartisan Grassroots Midwest consulting firm, disagreed. He said if tariffs tank the economy, Trump could be in trouble with the voters who powered him to the White House.

"Regardless of what you think about this policy, and I think it's bad, the presidential election is next year," Hemond said. "If tariffs start to bite on consumers, that's not good. If it starts to bite on upper Midwestern durable goods manufacturers, that's even worse."

Jonathan Oosting of The Detroit News contributed.

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Twitter: @Keith_Laing