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Tariff battles still being watched for foreign cars, auto parts

Monday, July 30, 2018 - 07:00
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Citing national security concerns, the Trump administration has expanded the use of tariffs for both steel and aluminum, as well as against a large swath of goods imported from China. The administration also has foreign-made automobiles and auto parts in its sights, having initiated a new Section 232 investigation into whether such imports impair national security.

“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” said Secretary of Commerce Wilbur Ross. “The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.” 

The Section 232 statute the recent steel and aluminum tariffs (and proposed auto tariffs) were issued under was originally developed to cover trade that had a direct impact on national security, but the Trump administration has broadened their definition of what types of activities should fall under the security umbrella.

This is a brand of nationalist economics that you may remember from your high school history classes as “mercantilism,” and generally favors protectionist policies, according to Raj Bhala, senior advisor at Dentons U.S. LLP, speaking in a recent webinar on the Trump administration’s trade policies, hosted by the AutoCare Association. “It’s very controversial, and many economists are deeply skeptical that a trade deficit threatens national security,” Bhala says. “Instead, they say trade linkages strengthen national security.”

The current tariffs do have an exclusion process available so that countries or specific products can be excluded from the tariffs. “There is a deliberation period of 90 days or more to grant the exclusion to the company or product, but that process is not working well right now,” says Vanessa Sciarra, vice president of legal affairs for trade and investment at the National Foreign Trade Council. “Anyone who has had to deal with it is relatively frustrated.”

Steel and aluminum prices are already on the rise because of the tariffs, which is what happened when former president George W. Bush imposed similar tariffs. “When you have a tariff, you expect to see the domestic price rise up to the level of the tariff,” Sciarra says. “So you would expect to see a 25 percent increase in steel prices and 10 percent for aluminum. We’re seeing numbers higher than that, particularly for aluminum.”

The country-specific quotas on metals, likewise, distort the market because manufacturers begin ordering more material than they need in order to avoid bumping up against the quote later.

While steel and aluminum producers have supported the tariffs, manufacturers have uniformly line dup against them. One big sticking point for industry is that the steel and aluminum tariffs primarily focus on raw products (like sheet metal or rolled metal). Finished goods made of foreign steel are generally not covered by the tariffs, so U.S. manufacturers of those same products are paying a higher price for raw materials, putting them at a disadvantage compared to foreign competitors.

While the steel, aluminum and proposed automotive tariffs have drawn opposition, the Section 301 tariffs that are specially aimed at China in response to alleged IP theft and other unfair practices have been quietly supported by other countries. However, China has now levied a series of retaliatory tariffs against U.S. goods, and there are fears the conflict could escalate into a full-blown trade war. At the end of June, President Trump directed the U.S. Trade Representative to prepare a 10 percent tariff on an additional $200 billion worth of Chinese imports.

Targeting Foreign Autos, Parts
The administration’s new Section 232 investigation into automobiles is also predicated on national security concerns. “Secretary Ross has argued that imports of automobiles and auto parts have eroded the domestic industry,” says Bhala. Ross cited a number of statistics, including the that the number of imported passenger vehicles has increased from 32 to 48 percent in the past 20 years, and that employment in the motor vehicle production in the U.S. has declined by 22 percent since 1990.

According to Bhala, the administration’s position also expands how the National Security Industrial Base Regulation (NSIBR) is being used to restrict trade. They are using a new criterion that considers production by majority U.S.-owned firms as separate from that of majority foreign-owned firms. “What the administration is suggesting is that it is not enough to be made in the USA, but it also has got to be made in the USA by American firms,” Bhala says.

Bhala notes that despite the figures the administration has cited, automotive output in the U.S. has grown by triple-digit percentages since 2009, and that the decline in employment “has been probably caused not by imports, but by … automation,” he says.

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