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Cost of auto tariffs continues to climb

Monday, October 1, 2018 - 07:00
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Both automakers and parts manufacturers/distributors have been vocal in their opposition to tariffs already enacted by the Trump Administration. The cost of the tariffs to industry could climb as the U.S. Department of Commerce has launched a Section 232 investigation that could result in tariffs on imported cars and parts.

Existing tariffs on steel and aluminum are already affecting the auto sector, and additional tariffs on goods from China, Mexico, Canada, and the EU have resulted in retaliatory tariffs that are impacting other industries. The agriculture sector, for instance, has been particularly hard hit by retaliatory tariffs on soy beans and other goods.

In response, Agriculture Secretary Sonny Perdue announced a $12 billion aid program to help farmers. The aid package includes direct payments, food purchases of surplus goods for nutrition programs, and a trade promotion program for providing private sector assistance in new markets.

“This administration will not stand by while our hard-working agriculture producers bear the brunt of unfriendly and illegal tariffs enacted by other nations,” Perdue said. 

Likewise, the automotive and auto parts sectors have complained loudly about the potential impact on existing and proposed tariffs on steel, aluminum, against some goods coming from China, and automotive tariffs that the administration had planned on vehicles coming from the European Union.

So what would a similar bailout offered to the automotive sector look like? According to the U.S. Chamber of Commerce, it would cost taxpayers roughly $7.6 billion to provide similar aid to the automobile, motorcycle and part manufacturing market. In fact, after agriculture, the auto sector would require the largest fix should the government continue down what the Chamber’s executive vice president and chief policy officer, Neil Bradley, characterized as a “slippery – and costly – slope,” in a recent analysis. The iron and steel and aluminum markets combined would cost another $4.2 billion.

An aid package that covered all sectors negatively affected by the tariffs could potentially cost as much as $39 billion. “The administration’s focus should be expanding free trade and removing these harmful tariffs, not allocating taxpayer’s money to only marginally ease the suffering for some of the industries feeling the pain of the trade war,” Bradley said.

The Chamber calculated the ratio of the proposed agricultural package to the value of exports affected by retaliatory tariffs from China, the EU, Mexico and Canada, and then applied that figure to the value of exports in the other affected industries.

Trade Deals Still Up in the Air

The tariffs have made ongoing trade deal negotiations tense, but there was some positive movement in July when the U.S. and EU agreed to a temporary truce, halting any new tariffs during trade negotiations and agreeing to discuss tariffs on European steel and aluminum. Today, representatives from Mexico, Canada and the United States announced that a unified agreement to replace NAFTA had been settled upon, with the goal of signing that agreement and sending it to Congress for approval later this year.

On the other hand, President Trump has already implemented tariffs on billions of dollars of goods coming from China, and threatened to expand those tariffs to include nearly everything coming from that country in a rapidly escalating, back-and-forth contest of retaliatory tariffs.

So far, the U.S. Congress has shown little interest in challenging the administration’s trade policies, which appear to be greatly expanding the definition of national security in justifying punitive tariffs. Dozens of trade associations, including the Motor & Equipment Manufacturers Association (MEMA), signed on to a joint letter urging greater congressional oversight of these policies.

“We see the growing willingness of the current Administration to use tariffs (and the related use of absolute import quotas) as a major policy tool in an increasing number of trade disputes with our allies as a trend that needs to be addressed by Congress,” the letter stated. “There are valid reasons for Congress to have delegated significant authority to the President in order to address unfair trade practices and liberalize world trade. However, this extensive unilateral use of tariffs by the Executive Branch is upsetting the historic balance between Congressional and Executive powers, which has worked effectively for many decades to strengthen our economy and grow export opportunities for American manufacturers, service providers, ranchers and farmers, and needs to be reassessed.”

MEMA also chimed in on the Section 232 National Security Investigation on potential tariffs on vehicle and auto parts imports, noting that suppliers are already dealing with the impact of the steel and aluminum tariffs, increased costs of domestic raw materials, and retaliatory tariffs from other countries. The cumulative affect of the ongoing brinksmanship when it comes to international trade could potentially reduce production and lead to job losses, according to the organization.

“The importation of motor vehicle parts is not a risk to our national security,” said Ann Wilson, MEMA senior vice president of government affairs, testifying at a Congressional hearing on the investigation. “However, the imposition of tariffs is a risk to our economic security, jeopardizing supplier jobs and investments in the United States … To put it bluntly, if we lose the opportunity to develop and manufacture new technologies in the U.S., we will have little opportunity to recoup these losses for a decade.”

“The opposition to this investigation is widespread and deep because the damaging consequences are alarming. Higher auto tariffs will harm American families and workers, along with the economy,” added Jennifer Thomas, vice president of federal government affairs at the Alliance of Automobile Manufacturers. “Simply put, auto tariffs are a massive tax on consumers. Industry analyses show that a 25 percent tariff would raise the price of an imported car nearly $6,000 and the price of a U.S.-built car $2,000. This would equate to an $83 billion tax on U.S. consumers that would trigger a domino effect on the industry and economy. When vehicle prices rise, demand drops. Lower demand means less production.”

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