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President Donald Trump

Trump Hits Allies with Tariff Threat to Global Car Industry

May 24, 2018
The statement late Wednesday that the U.S. is investigating auto imports on national security concerns drew pointed responses from Japan and South Korea.

President Donald Trump’s push for tariffs on imported cars and trucks aggravates trade tensions with American’s closest allies and threatens a shake-up of the global auto industry.

The statement late Wednesday that the U.S. is investigating auto imports on national security concerns drew pointed responses from Japan and South Korea -- two nations that have been at pains to placate Trump. It also ended the temporary calm that came less than a week ago when the U.S. and China declared a truce in their trade dispute.

The probe will be conducted under Section 232 of a 1960s trade law, the same tool the president invoked in imposing global tariffs on imported steel and aluminum earlier this year. An additional tariff on vehicles of up to 25% is also under consideration, according to a person familiar with the matter who asked not to be identified.

“Imposing broad, comprehensive restrictions on such a large industry could cause confusion in world markets, and could lead to the breakdown of the multilateral trade system based on WTO rules,” Japanese Trade Minister Hiroshige Seko said Thursday in Tokyo. Automakers were the biggest drag on Japan’s Topix stock index on Thursday.


South Korea’s government said it has formed a task force with automakers and car associations to review the potential impact on the local auto industry of the U.S. move and to consider countermeasures.

Beijing also weighed in, with a Ministry of Commerce spokesman saying, "China opposes the abusing of national security provisions, which would severely undermine the multilateral trading system, and disrupt the normal trade order."

Trump’s announcement comes as Republican lawmakers prepare for midterm elections in November that will determine whether the party retains its majority in both the House of Representatives and Senate.

“To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees,” Cody Lusk, president of the American International Automobile Dealers Association, said on Wednesday.

Key States

Trump has made protecting American manufacturing workers -- and the iconic auto industry, in particular -- a keystone of his administration. Wins in manufacturing states such as Michigan and Ohio were key to his victory in 2016.

The auto-import probe was panned by supporters of open trade.

“I fear that they’ve now crossed the Rubicon into wholesale protectionism,” said Rufus Yerxa, president of the National Foreign Trade Council, a trade policy group representing U.S. companies. “Lots of countries have resorted to protectionism when their economies were doing badly. It almost never works. But Trump may be the first leader ever to do it when the economy is booming. He’s trying to fix a problem that ain’t broke. The auto industry is healthy.”

The Commerce Department, which is leading the probe, said in a statement that automobile manufacturing “has long been a significant source of American technological innovation.”

The investigation will examine whether the decline of the U.S. automobile sector threatens to weaken the U.S. economy by reducing research and development, skilled jobs and more advanced manufacturing processes for things like electric and autonomous vehicles.

Hearings, Comment

The department added it will publish a notice soon announcing a hearing date and inviting comment from businesses and the public. The process could last weeks or months before it would present its recommendation to the president, who gets the final say.

Some industry observers saw this latest move as a U.S. tactic to pressure Mexico and Canada to move quickly to agree to an overhaul of the North American Free Trade Agreement. Rules for regional content in cars have been one of the major sticking points in the Nafta discussions.

The U.S. levies a 2.5% duty on imported passenger cars and a 25% tariff on pickup trucks from countries that are not parties to free trade agreements with it.

Since the 2016 election campaign, Trump has repeatedly threatened to slap new tariffs on imported cars. But it may be tougher for the U.S. to make a national security case with a consumer product such as cars, than it did with steel and aluminum, two materials used in military equipment.

By Andrew Mayeda, Ryan Beene and Jenny Leonard

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Licensed content from Bloomberg, copyright 2016.

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