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Tariffs, NAFTA hang over auto industry

Tuesday, June 19, 2018 - 07:00
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In March, 45 trade associations sent a letter to the White House arguing against the Chinese tariffs. The Auto Care Association, one of the signatories, warned in the letter that the tariffs would trigger a “chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods, and services exports; and raising costs for businesses and consumers.” 

“There’s not a lot of disagreement about the problem,” Wilson says. “We do have a disagreement about the tools used to address the problem. Tariffs will limit our ability to be competitive.”

Since the steel and aluminum tariffs went into effect, the Commerce Department has received more than 8,200 exemption requests from companies that rely on imported foreign metals.  Every single item made with foreign metal requires an individual filing (even for the same item in different widths and lengths).

The exemption process is extremely lengthy, as domestic steel and aluminum producers have 30 days to file an objection to any public application, and the government has 60 days to make a final ruling. In the meantime, companies may find themselves short of parts or raw materials.

Even with an exemption, supply won’t be guaranteed indefinitely. “It’s important to remember that the exemptions from the tariff will include quotas on how much steel and aluminum can be brought in,” Wilson says. “It’s not a matter of reaching the quota and then paying the tariff; that won’t be allowed. That’s why we’re seeing companies applying for product exclusions with the Department of Commerce.”

“These proposed tariffs on steel and aluminum imports couldn’t come at a worse time,” said Cody Lusk, president and CEO of the American International Automobile Dealers Association (AIADA). “Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America. The burden of these tariffs, as always, will be passed on to the American consumer. Car shoppers looking for a deal will instead find that they are paying a new tax to transport themselves and their families.”

As many tariff opponents have pointed out, many of the items on the list can’t be easily obtained or manufactured domestically, if at all. "Our members report that a number of products included on the tariff list cannot be sourced in the U.S. as there are no U.S.‐based factories producing some of these products,” says Aaron Lowe, Auto Care Association senior vice president of government and regulator affairs, who testified at recent hearings on the Section 301 tariffs. “At the same time, minimal alternative sources exist, as China is the primary supplier to the world. Therefore, we do not see any benefits to the U.S. economy or U.S.‐based manufacturers when imposing tariffs on these products, as sourcing would just shift to low‐cost countries and would not alleviate the overall U.S. trade imbalance."

The administration has also proposed a 20 percent tariff on imported cars in an effort to encourage domestic production by foreign automakers. The tariff was brought up during a meeting with automakers on emissions standards. The administration is currently in talks with California regulators about harmonizing the state’s more stringent environmental rules with the Trump administration’s roll back of Obama-era emissions standards.

The president threatened a tariff increase if the EU retaliated against U.S. duties on steel and aluminum, but such tariffs may violate World Trade Organization rules. 

NAFTA Reaches Deadline

The ongoing NAFTA renegotiations have also made the international trade picture more challenging for automakers and suppliers. The administration had hoped to wrap up talks by May 17 so that Congress could vote on any proposed changes, but the deadline came and went without a deal.

U.S. demands for higher North American and U.S. content in vehicles were an ongoing sticking point for Mexico and Canada. Under U.S. demands as of this writing, regional content could rise from 62.5 percent to 75 percent. The U.S. also wanted to require wages at auto plants to be $16 an hour or higher.

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