Earlier this month, President Donald Trump teased in a tweet that “big news” was en route for the auto industry.
There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!
— Donald J. Trump (@realDonaldTrump) May 23, 2018
Now, the Department of Commerce has delivered it: the administration is launching an investigation to determine whether an influx of vehicle imports threatens national security.
The inquiry will focus on whether the widespread availability of foreign cars has:
- Weakened the country’s “internal economy.”
- Impacted America’s ability to develop cutting-edge automotive technology, including autonomous cars, connected infrastructure, and new battery fuel cells.
Such logic mirrors that used in the president’s recent call for tariffs on foreign steel and aluminum. Coupled with a bid to renegotiate the North American Free Trade Agreement (NAFTA), these measures have been presented as part of a wholesale approach to bring more manufacturing jobs back into the country.
Still, not everyone is on board with the idea, including some members of the auto industry. The move could ultimately backfire and do damage to their sales, they said.
Ground Rules
The call for an investigation may be new, but the administration began laying the groundwork for it more than a year ago. A White House memo listed “vehicles” alongside steel, aluminum, aircrafts, and semiconductors as pillars of the country’s “manufacturing and defense industrial bases.” These are assets it deemed worthy of protection against “unfair trade practices and other abuses.”
The designation allows the president to utilize the full force of the Trade Expansion Act’s Section 232. The act authorizes the Commerce Department to look into potential trade-related threats to the nation.
In the past, the clause has been used to examine the impact of imported crude oil and petroleum products, uranium, and jet engine parts, among other initiatives.
Indeed, the White House is already familiar with the concept.
Officials used Section 232 to propose the recent tariffs on foreign steel and aluminum. The metal imports posed a threat, the administration argued, by working to deflate the domestic steel and aluminum industries.
Both suffered significant job losses over the years. (The steel industry shed 35% of its jobs since 2000 while employment in the aluminum industry shrunk by 58% between 2013 and 2016.)
The administration has taken a similar tack when making the argument for the auto industry.
The domestic production of cars and trucks fell by 22% between 1990 and 2017.
Imported passenger vehicles now make up 48% of the market. That’s up from 32% in 1998, the Department of Commerce noted. Meanwhile, the domestic production of cars and trucks fell by 22% between 1990 and 2017.
All told, the trends could equate a threat to America’s automotive ingenuity, long a central and stabilizing force in the country’s economy, the White House suggested. Already, U.S.-owned auto manufacturers contribute just 20% of global research and development in the industry, Commerce Department figures show.
But, some have argued, for all its best intentions, the plan could work to dilute American automotive influence still further.
Emotionally Taxing
The move was not without its detractors, some of which spoke from the auto industry itself.
“No one is asking for this protection,” said John Bozella, president of the Global Automakers group.
The biggest worry is that the investigation could lead to still more tariffs, he said, which could conflate the market and lead to a less competitive industry—which would likely turn out more expensive products. If too many tariffs get issued, the number of countries willing to ship their cars in could rapidly shrink, leading to a higher demand—and higher prices—elsewhere. And those that do continue importing their products could incorporate the increased tariffs directly into the price of their vehicles.
Carmakers raised similar alarms after the proposed steel and aluminum tariffs were announced. They openly worried the increased prices would be passed on to consumers.
Foreign-made vehicles could see an import tax of up to 25% in the wake of the inquiry, White House officials have signaled. (Currently, cars assembled abroad are subject to a tariff of 2.5%, though foreign-built vans and pick-up trucks are taxed at 25%.)
Any countries impacted by the new charges could conceivably retaliate by placing their own hefty import fines on American goods. Chinese leaders did so this spring, after Trump announced plans for stiff tariffs on a raft of Chinese-made wares. Such tit-for-tat could lead to an overall cost increase for American goods abroad and the potential to slow U.S. markets even further.
And it could prove extra difficult to manage such policies in a truly global economy. Automotive parts are sourced from all over the world, and it’s much rarer now for a vehicle to be produced exclusively within the borders of a single country.
Lines in the Sand
Critics have questioned the announcement's timing, saying it could pressure Mexico and Canada as the countries work with the U.S. on NAFTA renegotiations.
Auto imports have been a particularly sticky subject, and the threat of new tariffs could help buoy American demands for a higher percentage of vehicle parts to be manufactured in U.S. plants.
Still, the move would undoubtedly also impact relations with Japan, South Korea, and the European Union. Those entities, along with Canada and Mexico, represent 98% of annual American auto imports.
And if it’s determined that the increase of imports has “threatened” American national security, tariffs and strained relations aren’t the only possible outcomes.
Such a finding could trigger backlash from within the World Trade Organization, a global task force charged with managing international trade disputes.
The group is already hosting a legal challenge filed by Chinese officials in response to a similar Commerce Department determination, which led to several recent tariffs imposed on Chinese goods by the United States.
For now, however, the newest investigation has only begun and will likely take months to conclude—with any possible impacts taking even longer to manifest.
