Administration Exploring Raising Tariffs on Cars, Auto Parts

According to a report in The Wall Street Journal President Donald Trump wants a 25 percent tariff on cars and auto parts, but the official announcement from the White House did not mention a new tariff rate. The U.S. is exploring raising tariffs on cars and car parts under Section 232, the same mechanism it used to raise tariffs and place quotas on some countries' steel and aluminum exports. Late in the evening May 23, Trump said in a statement that he asked Ross to consider a Section 232 investigation.

Europe, Japan, China and India allege the previous Section 232 action is actually a safeguard tariff, not a national security measure, and that the U.S. acted illegally when it raised those tariffs. "My hope is that [trading partners] see this as an empty threat and do not react," said Dan Ujczo, a trade lawyer and NAFTA expert at Dickinson Wright in Columbus, Ohio. He does not believe the possibility of higher tariffs on cars and car parts is good leverage against Mexico, the largest exporter of those goods to the U.S.

"My basic assumption with what the administration is doing with regards to trade, it's all negotiations and pressure," said Sen. Ron Johnson, R-Wis.. He added, "I would advise the administration to conclude these trade deals as quickly as possible." He said that if the U.S. would drop its demand for a sunset clause and the end of an Investor-State Dispute System, that could help in that goal.

Ujczo does not think the tactic will be successful. Instead, he said, Mexico and Canada will feel "the U.S. public and business community will take care of this. I think there will be vigorous opposition to this in both Congress and the industry."

Senate Finance Committee Chairman Orrin Hatch, R-Utah, issued a statement May 24 calling the investigation "deeply misguided." He said a tariff hike on imports would raise prices on all cars, domestic and foreign, and that the administration should focus on China's trade practices instead of taxing American families. Senate Finance ranking member Ron Wyden, D-Ore., said he doubts the administration has a coherent strategy to increase wages and jobs in domestic automaking.

Senators from auto manufacturing states -- and Johnson, whose state had major job losses from auto plant closures -- said at the Capitol that they disapprove of the idea of higher tariffs on auto parts and autos. "I think he's abusing his authority under [Section] 232," said Sen. Bob Corker, R-Tenn. "And it's a dangerous path to go down, to use national security as a reason. I hope he'll abandon that quickly. Other nations can do the same thing."

Johnson said the administration's motivation is clearly economic, not related to national security, and he doesn't think it's wise to claim otherwise.

"Why would we be concerned," Sen. Tim Scott, R-S.C., asked sarcastically while mentioning the auto industry's presence in his state. "We only have BMW, Volvo, Mercedes, Continental, Bridgestone, Michelin, and a bunch of suppliers." His South Carolina colleague, fellow Republican Lindsey Graham, said BMWs built in South Carolina are sold all over the world. "I'm very concerned about this," he said.

When asked if raising tariffs on auto parts would hurt domestic auto manufacturing more than help, Johnson referred to his experience running a family plastic exclusion business before joining the Senate. "Having exported to twentysomething different countries, understanding global supply chains, it's very difficult to insert government intervention into those supply chains without being disruptive," he said.

But the reaction wasn't universally negative. Sen. Gary Peters, D-Mich., put out a statement that said, "During World War II, Michigan’s automotive factories built the Arsenal of Democracy that helped defeat tyranny and create the American middle class. As a member of the Senate Armed Services Committee, I am extremely concerned that any decline in our domestic manufacturing industry weakens America as we face aggression from global industrial powers like China and Russia. I have always been willing to work with anyone regardless of party to protect Michigan autoworkers, who can outcompete anyone when given a level playing field."

The Auto Alliance was more measured in its reaction than the critiques on the Hill, but it did not welcome what supposedly is designed to help many of its members. "We are confident that vehicle imports do not pose a national security risk to the U.S.," the trade group said. Both domestic and foreign manufacturers making cars and trucks in the U.S. export their products, they noted.

The American International Automobile Dealers Association -- which sells both imports and German, Japanese and Korean cars assembled in the U.S. -- blasted the proposal. "American families who can least afford a 25 percent price increase on vehicles will bear the burden of this tariff,” AIADA President and CEO Cody Lusk said. The trade group noted that 577,000 workers are employed at its dealerships. "To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees.”

The U.S. Chamber of Commerce said, "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." Germany, Japan and China also reacted negatively to the announcement, according to Associated Press reporting. Japan's Economy Trade and Industry minister said implementing tariffs would throw the global market into turmoil. Germany's association of industry groups said levying tariffs on auto imports would be "another nasty blow to our economic relations" with the U.S. And China said it would firmly defend its interests if tariffs were raised on its auto part exports.