The United States will give a 180-day window to its auto trading partners to reduce imports of automobiles and certain automobile parts, essentially delaying potential Section 232 tariffs on these products, the White House said on Friday May 17.
President Donald Trump has directed US Trade Representative Robert Lighthizer to pursue negotiations with the European Union, Japan and other countries to adjust auto shipments to the US.
The announcement came after findings of a Section 232 investigation on auto imports showed that American-owned automotive research and development (R&D) and manufacturing are critical to national security, and that increases in imports of automobiles and automobile parts have given foreign-owned producers a competitive advantage over American-owned producers over the past three decades.
Trump was facing a deadline of May 18 to announce a decision on the auto Section 232 investigation, 90 days after the Commerce Department's formal submission of its findings on February 17.
The Trump administration initiated the auto Section 232 investigation last May. The move followed the imposition blanket tariffs in March 2018 of 25% on imports of steel and 10% on those of aluminium.
While these tariffs have resulted in rising supply chain costs across business sectors, potential Section 232 tariffs on imported automobiles and auto parts are a bigger concern for global automakers because they have invested billions of dollars over the past few decades to take advantage of international trade and cost arbitrage. The possibility of such tariffs threatens to wildly disrupt existing trade patterns, industry experts have said.
“It’s a breathing space in this climate. Six months from now it’s going to be November, less than a year from the [US general] election, it will be harder and harder for [Trump] to do anything,” Washington-based trade attorney Lewis E. Leibowitz said.
Auto 232 investigation findings
Apart from labeling imported vehicles and parts a threat to national security, the Commerce report also noted that protected foreign markets - such as the EU and Japan - impose “significant barriers to automotive imports from the United States, severely disadvantaging American-owned producers and preventing them from developing alternative sources of revenue for R&D in the face of declining domestic sales,” according to the White House release, which provides a first glimpse into the findings of the Commerce report.
“American-owned producers’ share of the global automobile market fell from 36% in 1995 to just 12% in 2017, reducing American-owned producers’ ability to fund necessary R&D,” it said.
As a result, Commerce Secretary Wilbur Ross recommended actions to adjust automotive imports so that they won't threaten to impair national security, with one recommendation being to pursue negotiations aimed at obtaining agreements to address the threatened impairment of national security, the White House added.
Reactions from Congress, industry
“I’m glad President Trump decided to delay these tariffs... I have serious questions about the legitimacy of using national security as a basis to impose tariffs on cars and car parts,” Senate Finance Committee chairman Chuck Grassley said in a statement on May 17.
“I’ll continue to strongly support the Trump administration’s pursuit of trade negotiations with the European Union and Japan. I encourage Ambassador Lighthizer to pursue comprehensive trade agreements that benefit all Americans, including farmers, manufacturers and service providers,” he added.
Using Commerce's findings as justification to “force our trading partners into new negotiations will only create more uncertainty for America’s entire auto industry. If President Trump follows through on his threat to place 25% tariffs on imported autos and auto parts, he will be directly responsible for a drastic tax increase on American consumers, which could result in a loss of 2 million vehicle sales and jeopardize up to 700,000 American jobs,” Cody Lusk, president and chief executive officer of the American International Automobile Dealers Association, said in a statement on Friday.
The American Automotive Policy Council, which represents FCA USA LLC, Ford Motor Co and General Motors Co, said it “will continue to urge the administration to reject imposing higher auto tariffs under Section 232. These imposed tariffs would weaken global competitiveness and invite retaliation from our trading partners, which could harm jobs and investment in the US.”
Hot-rolled coil, a benchmark steel product that is relevant to automotive uses, rose to a nearly 10-year high in the immediate aftermath of the Section 232 import restrictions on steel products going into force. But prices have since fallen, with Fastmarkets AMM's daily Midwest hot-rolled coil index calculated at $31.48 per hundredweight ($629.60 per short ton) fob mill on Thursday, down from the nearly decade-long peak of $45.84 per cwt on July 5, 2018.