The implementation of Section 232 tariffs on imports of automobiles and automotive parts will have devastating and far-reaching consequences for the US auto industry and domestic jobs, auto industry association representatives warned in testimony at a two-day public hearing that began on Thursday July 19.
The US Commerce Department initiated the investigation against imports of automobiles and automotive parts on May 23, with a June 22 deadline for submitting written comments.
“The importation of motor vehicle parts is not a risk to our national security. However, the imposition of tariffs is a risk to our economic security, jeopardizing supplier jobs and investments in the United States,” Ann Wilson, senior vice president of the Motor & Equipment Manufacturers Association (MEMA), said in testimony on July 19.
Other industry groups echoed these concerns, indicating that the proposed tariffs threaten investments in research and development, US auto production and domestic jobs.
The American Automotive Policy Council's (AAPC's) “analysis showed that a tariff increase under Section 232 – coupled with existing tariffs on imported steel and aluminium, including from our North American allies – will result in a net loss of American jobs, lower capital investment and lower exports by the US auto sector,” AAPC president Matt Blunt said in his Thursday testimony.
The US could lose its prominent position in the electric and automated vehicle sector, particularly on the research-and-development (R&D) front, due to these tariffs, according to the Alliance of Automobile Manufacturers (AAM).
“Today the US is a leader in the global race to develop automation and electrification. If auto tariffs raise costs and stall investments, the US may well lose that leadership since other countries are already chasing automakers to build R&D facilities overseas,” AAM vice president of federal government affairs Jennifer Thomas said at the hearing.
Job losses stemming from the proposed tariffs would be significant and would be felt beyond just auto manufacturing, according to Bernhard Mattes, president of German automotive industry association VDA.
“We create over 100,000 high-quality jobs – and this is in production only, with many more in supply services,” Mattes said in his July 19 testimony.
“America’s 9,600 international nameplate auto franchises, many of which are family owned businesses, employ more than 577,000 Americans, resulting in a payroll of $32 billion and an additional 527,000 indirect jobs,” American International Automobile Dealers Association (AIADA) president Cody Lusk said.
MEMA's Wilson agreed. “Cost increases from abrupt changes resulting from tariffs or quotas are felt up and down the highly integrated supply chain. Thus, smaller, more localized companies, which are typically Tier Two and Three suppliers, are likely to feel the pinch of increased costs immediately. As our survey respondents indicated, job cuts would occur within the first six months after imposition of the tariffs. Keep in mind that many of these same suppliers already feel the impacts of a 40-50% increase in steel and aluminium costs as well as tariffs on inputs from China,” she said.
Indeed, other tariffs levied under Section 232, announced in March, created a major disruption to the US steel and aluminium markets and sparked significant price volatility.
American Metal Market’s hot-rolled coil index, for example, reached $45.84 per hundredweight ($916.80 per ton) in early July, the highest level since October 2008. While the index has since slipped from that level, to $45.32 per cwt on July 19, it is still up by 38.9% from $32.63 per cwt at the start of the year.
Similarly, American Metal Market assessed the P1020 Midwest premium at 19.75-20.25 per lb on July 20, more than double the 9.4-9.5 cents per lb at the start of the year. The premium had hit 22-23 cents per lb on April 10, a more than three-year high.
Automakers will be forced to pass the costs of the proposed tariffs down to consumers, which will have far-reaching consequences for US auto production, according to AAM's Thomas. “[The proposed auto tariffs] would equate to an $83-billion tax on US consumers that would trigger a domino effect on the industry and economy. When vehicle prices rise, demand drops. Lower demand means less production.”
Testimony was also heard from representatives of foreign government during the hearing, including from the European Union, Mexico and Canada.
The US Section 232 tariffs on steel and aluminium imports drew a swift rebuke from the country's North American neighbors, prompting retaliatory tariffs from Mexico and Canada. Both countries have also spoken out against the proposed tariffs, given the integrated nature of the North American automotive supply chain.
The European Union’s retaliatory measures prompted President Donald Trump last month to threaten tariffs on EU-built vehicles via Twitter, which the EU claimed could threaten as many as 4.3 million EU jobs in automotive manufacturing and in the retail sector.
A metals analyst told American Metal Market that he is still evaluating the full impact of the proposed tariffs, but identified many potential losers and acknowledged that the only potential winners in this situation would be domestic metals producers. It is still unclear whether the tariffs would create a net loss or gain in demand for the domestic steel and aluminium industries from the automotive manufacturing sector.