With the latest threat to impose harsh import duties on vehicles and auto parts under the guise of national security, President Donald Trump opens another front in his broad trade strategy.
In addition to complicating the job of already busy U.S. trade negotiators, a move against auto imports could be the tipping point that prompts broad retaliation. It also could damage the U.S. economy, harming consumers, investment and employment, even while Trump said his aim is to help American autoworkers.
Trump late on Wednesday announced he had ordered the Commerce Department to open an investigation into imports of cars, trucks and auto parts to determine if they were undermining U.S. national security. This use of Section 232 of U.S. trade law is the same tactic employed in March to impose 25 percent tariffs on steel imports and 10 percent on aluminum.
The investigation will take several months—time for companies and trading partners to register their concerns—but other governments now know Trump is likely to make good on his threat.
Rufus Yerxa, president of the National Foreign Trade Council said the tariff threat undermined global trading rules and could spark immediate reaction. “If he heads down this road of raw economic nationalism, using tariffs as a weapon, every other major economy in the world is going to follow suit eventually and we’re going to be back in the 1930s,” Yerxa told AFP.
Trump said Thursday he was “fighting to reclaim the stolen manufacturing jobs” but economists say the move could have the opposite effect.
Mary Lovely, a trade expert and economics professor at Syracuse University, argued that blocking imports of cars and parts “is actually going to reduce competitiveness of the American-based producers,” and create an environment where they will only be able to sell vehicles in the domestic market. “All these things have an action and reaction that makes me worry about the long-term consequences of this for the very industry he thinks he is protecting,” she said.
John Bozzella, head of Global Automakers, a trade association representing international vehicle and parts manufacturers and suppliers, said the industry did not ask for any help from the government. “Contrary to the assumption underlying the investigation on import vehicles, the U.S. auto industry is thriving. To our knowledge no one is asking for this protection,” Bozzella said in a statement. “If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices.”
Trump’s latest action comes at a time when the White House is engaged in three sensitive trade negotiations, which policy experts say are likely to deteriorate.
The administration is currently trying to renegotiate the 24-year-old North American Free Trade Agreement; and hold talks with China to defuse the conflict prompted by the 25 percent tariffs on Chinese goods due to the alleged theft of U.S. intellectual property.
U.S. officials also are trying to reach an agreement with the E.U. to permanently exempt the bloc from the steel and aluminum tariffs—and in fact floated the possibility that lower tariffs on U.S. autos might be part of the deal.
Governments including the E.U., China and Canada already have strenuously complained about the U.S. decision and dismissed Trump’s national security justification.
Commerce Secretary Wilbur Ross said U.S. trade law defines national security broadly, so that it includes the economy and “the impact on employment.”
Yerxa called the move as a “declaration of protectionism,” and warned that the car industry was much bigger than steel and will have a much bigger impact. “People were worried about that being a trade war, this is a tenfold increase in the trade war,” he told AFP, adding that it made little sense to protect a thriving industry, one that was the single biggest U.S. manufacturing sector, and employed eight million people directly or indirectly through related industries.
Lovely said the threats endangered the important relationship with the E.U. “It just seems we keep adding more fuel to the fire to have perhaps a potential trade war with the European Union.”
The NAFTA talks with Mexico and Canada are in a crucial phase if they are to be completed this year, but Yerxa and Lovely warn that the talks could be at risk. “I see this as forcing Canada and Mexico to dig in even further in resisting the kind of bullying that’s being conveyed through this action,” Lovely said. And she said it was “deeply troubling,” given that the U.S. auto industry depended on the integrated NAFTA supply chain to compete with Asian and German manufacturers.