Trump Delays Auto Tariffs For 6 Months

May 17, 2019
Originally published on May 18, 2019 10:59 am

Updated at 11:34 a.m. ET

The Trump administration will delay tariffs on cars and auto parts imports for six months while it negotiates trade deals with Japan and the European Union, the White House announced Friday.

President Trump said that Commerce Secretary Wilbur Ross has concluded "that the present quantities and circumstances of automobile and certain automobile parts imports threaten to impair" national security, giving the president the authority to declare tariffs or quotas. Trump cited the same Section 232 authority that he used to impose tariffs on steel and aluminum.

The administration had set a Saturday deadline to decide whether to impose auto tariffs over national security concerns. But instead of taking immediate action, the president is calling for new trade agreements to be negotiated.

His executive order does not specify which tariffs would be imposed if negotiations fail, but industry experts have anticipated tariffs as high as 25%.

The auto industry has been united in opposition to the tariffs, which would hurt American automakers as well as companies abroad. Every car made today involves a complex global supply chain, with thousands of parts sourced from around the world, so even U.S.-made components and vehicles would be affected by tariffs.

An analysis by the Center for Automotive Research found that raising tariffs on imports would increase new car prices by thousands of dollars and reduce new car sales by more than 1 million units a year.

Industry experts also say hundreds of thousands of jobs would be lost — and that's without factoring in retaliatory tariffs.

The White House spent about a year deliberating whether car imports threaten national security. In the executive order, the administration argues that American "automotive technological superiority" is essential to the national defense, and that imports weaken U.S. innovation.

Auto industry experts have wholeheartedly rejected the idea that imports threaten national security. Howard Hakes, the chairman of the American International Automobile Dealers Association, recently called the investigation "insulting."

"Our stores and our products are NO threat to the American way of life," he wrote.

Ann Wilson, the senior vice president of government affairs for the Motor and Equipment Manufacturers Association, says the idea that auto imports threaten national security has "really puzzled the entire industry."

"And when I say the entire industry, I mean vehicle manufacturers, dealers, suppliers, the aftermarket — we have all joined together in opposition to this," she says.

Additionally, the countries that would be affected by these potential tariffs — EU member states and Japan — are close U.S. allies, not military threats.

Trade experts agree the national security justification for these tariffs is tenuous at best. However, the president has broad authority to act on national security grounds, and U.S. courts and the World Trade Organization have historically been reluctant to challenge that authority.

The threatened auto tariffs are widely seen as a negotiating tactic, leverage to try to get trade partners to strike more favorable deals with the U.S.

David Schwietert, interim CEO of the Auto Alliance, says even if the administration is trying to strike deals that might ultimately help American automakers, the mere threat of these tariffs is hurting them now. Among other things, the uncertainty hurts investment as companies find it more difficult to plan for the future.

"This isn't just a hypothetical," he says. "It is causing significant angst in the auto ecosystem — not just manufacturers, but suppliers and in the broader supply chain."

Some lawmakers have expressed concern over Trump's use of Section 232 — rarely used before this administration — to impose tariffs without any input from Congress.

Last week, a bipartisan group of representatives in the House delivered a letter to Larry Kudlow, the director of the National Economic Council, strongly urging him to "advise the president against imposing trade restrictions that could harm the auto sector and the American economy."

The lawmakers emphasized the tariffs would raise prices for consumers and would hurt American manufacturers — who "have not asked for and do not need protection," the letter stated.

Meanwhile, several members of Congress have supported legislation to limit the president's authority to set tariffs under Section 232.

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Last year, the Trump administration put tariffs on steel and aluminum, citing national security concerns. Yesterday, they lifted those tariffs but only for Canada and Mexico. The administration also declared that imported cars and car parts are a threat to national security. So why would the White House consider your Subaru or maybe Volkswagen a national defense risk? NPR's Camila Domonoske reports.

CAMILA DOMONOSKE, BYLINE: The White House case against car parts boils down to this - competing with imports means U.S. companies sell fewer cars and parts. That means less money for research and development. And that means fewer innovations, which hurts the military. So reduce imports, boost American innovation and promote the national defense. National security experts say that logic is flawed.

ASHLEY FENG: The perspective is this is something that will further harm national security as opposed to protecting it.

DOMONOSKE: Ashley Feng is a researcher at the Center for a New American Security, a think tank. She points out that these imports come from U.S. allies, mostly Europe or Japan. And most people believe that competition leads to innovation.

FENG: That is kind of just the basis of capitalism and our economy itself.

DOMONOSKE: Ann Wilson is with the Motor and Equipment Manufacturers Association. She says the U.S. auto industry is, in fact, a leader in tech innovation.

ANN WILSON: But if we don't have the free flow of goods, we're not going to see that investment in the U.S.

DOMONOSKE: So imposing tariffs, like the White House is considering, would be counterproductive. In fact, the entire auto industry has united against the potential tariffs. Regardless, the president made this declaration anyway. He's relying on a 1962 law that gives him broad authority over tariffs in the name of national security. It's the same law he used to put tariffs on steel and aluminum. And courts have rarely challenged the president on questions of defense. Gary Hufbauer is an expert in international trade. He says that kind of power made sense during the Cold War.

GARY HUFBAUER: At this time, you know, when we're talking about trade not with enemies but with allies, it's very odd.

DOMONOSKE: This particular law was rarely used until this administration took office. And think back to your high school civics class. Under the Constitution, Congress, not the president, has the power to regulate international commerce. A few lawmakers are starting to object that setting tariffs like this should be up to them.

HUFBAUER: But that's a nascent effort in the Congress. And right now he has the power.

DOMONOSKE: So why use this power if car imports aren't really a national security threat? It's a negotiating tactic, leverage to try to get more favorable deals with European and Japanese trading partners. Instead of putting tariffs in place now, the president is setting a six-month deadline for trade talks. Industry leaders say the goals may be laudable, but the strategy is costly. All automakers rely on parts from around the world. So tariffs would raise costs for American companies. Hundreds of thousands of jobs could be lost, and car prices might go up by thousands of dollars. David Schwietert is the interim head of a group representing automakers. He says even before the tariffs are in place, just the threat of them is affecting investment. It's leaving companies in limbo.

DAVID SCHWIETERT: This isn't just a hypothetical. It is causing significant angst.

DOMONOSKE: And Schwietert warns that this could set a precedent. If a car part is a security threat, couldn't anything get that classification? That should be worrisome for all industries, he says. Camila Domonoske, NPR News. Transcript provided by NPR, Copyright NPR.