SEMA eNews Vol. 22, No. 21, May 23, 2019

President Trump Delays Tariffs on Imported Automobiles and Parts

By SEMA Washington, D.C., Staff

President Trump is giving U.S. negotiators six months to reach agreements with the European Union (EU) and Japan before reassessing the imposition of tariffs on imported automobiles and parts. A year ago, President Trump directed the U.S. Department of Commerce (DOC) to investigate whether imported automobiles and auto parts posed a threat to America’s national security under Section 232 of U.S. trade law. The DOC sent its findings and recommendations to President Trump on February 17, 2019, which have not been made public. On May 18, 2019, the President announced that he has postponed the decision for 180 days, until mid-November.

The DOC investigation applies to all types of cars and parts, including new cars, classic cars, OEM parts and specialty auto parts. The move could affect all U.S. automakers and parts suppliers that use imported components, as well as importers of cars, trucks and SUVs. President Trump has discussed the potential imposition of 20%–25% tariffs.

In delaying the tariffs, President Trump issued a proclamation that cites findings from the DOC report, which notes concern about increases in the volume of automobile and autoparts imports over the past three decades, along with unease about foreign markets, such as the EU and Japan, which have imposed significant barriers to U.S. automotive exports.

The report found that, if continued, the contraction of the American-owned automotive industry “will significantly impede the United States’ ability to develop technologically advanced products that are essential to our ability to maintain technological superiority to meet defense requirements and cost-effective global power projection.” 

The report notes how critical American-owned automotive research and development is to national defense, such as innovations in engine and powertrain technology, electrification, lighter-weight materials, advanced connectivity and autonomous driving.  

President Trump directed the U.S. Trade Representative to pursue negotiations with the E.U., Japan and other countries to address the issue. Mexico, Canada and South Korea are exempt from the potential threat of tariffs because of free-trade agreements already negotiated.

Last year, SEMA joined the “Driving American Jobs Coalition,” a group representing the entire scope of the auto industry, including OEMs, dealers, suppliers and the aftermarket. The Coalition supports the Trump Administration’s efforts to create fair and reciprocal trade, and to protect intellectual property rights, but does not believe tariffs will accomplish this shared objective. The Coalition issued the following op-ed:

May 17, 2019
DRIVING AMERICAN JOBS OP-ED: Auto Industry Welcomes Bipartisan Opposition to Tariffs

Government “should not use tariffs to pick winners and losers,” especially as the impact of tariffs on the U.S. auto industry would “be passed on to consumers across the country and this world.” That is what H. David Britt—who sits on the Spartanburg County Council in South Carolina and chairs its Economic and Development Committee—told the Senate Finance Committee last year, and we at Driving American Jobs could not agree more.

The auto industry stands united in encouraging accountability and clarity when considering tariffs on national security grounds. The Commerce Department’s investigation, initiated one year ago this month, into whether imports of autos and auto parts are a threat to national security has resulted in prolonged uncertainty for the 10 million Americans whose livelihoods depend on the U.S. auto industry. The Trump administration’s choice to continue to threaten auto and auto-parts tariffs for an additional six months only increases uncertainty for these Americans.

Fortunately, upon taking the Senate Finance Committee chairmanship at the beginning of the year, Sen. Chuck Grassley announced that one of his top priorities would be to review the use of Section 232 tariffs under the Trade Expansion Act of 1962. As the Iowa Republican said, the provision “grants the president broad legal authority to impose tariffs in the name of national security” and the United States should not “alienate our allies with tariffs disguised as national security protections.”

Grassley has since committed to leading a bipartisan effort to reform the process for using such national security classifications, which will certainly strengthen the role of Congress and provide new levels of transparency and accountability.

With harmful Section 232 tariffs on auto and auto-parts imports still under consideration, it has been encouraging to see lawmakers from both parties come together to propose common-sense solutions that would curtail misuse of a national security remedy and avoid punitive tariffs of up to 25% on the auto industry. Led by Reps. Terri Sewell (D-Ala.) and Jackie Walorski (R-Ind.), a bipartisan group of 159 House lawmakers—81 Republicans and 78 Democrats—recently sent a letter to White House National Economic Council Director Larry Kudlow advising that Section 232 auto tariffs would raise prices for consumers and threaten jobs across the industry.

Simply put, auto tariffs are ultimately a tax on American workers and consumers and getting this policy wrong could needlessly hurt the U.S. economy and put hundreds of thousands of jobs at risk. The dynamic scale of the auto industry means it is a job multiplier across the supply chain: A typical auto plant employs between 2,000 and 3,000 workers, with each assembly plant job supporting nearly seven additional jobs in the community on average. In 2017, the United States exported $51.1 billion worth of passenger cars, SUVs and minivans.

Tariffs on the auto industry also impact the maintenance and repair of the more than 280 million cars and trucks on the road today. Nationwide, the auto-care industry, which encompasses aftermarket auto-parts manufacturers, distributors, retailers and independent repair shops, reports annual sales of $392 billion. Tariffs on imported auto parts will increase the cost for consumers to maintain and repair their vehicles.

A Center for Automotive Research paper published last year estimated that a 25% tariff on imports of cars, trucks and auto parts could lead to the loss of up to 715,000 U.S. jobs and vehicle sales could drop by as much as 2 million units per year.

The auto industry is at a turning point. Costly new tariffs will leave businesses with hard choices in response to the realities of higher costs of production, lower sales and profit margins, and retaliatory actions by our trading partners. There is widespread concern that such tariffs will result in less investment in research and development, at a time when the industry should be maintaining a competitive edge.

The U.S. auto industry is not a threat to national security, which is why Driving American Jobs, a coalition of the United States’ leading auto manufacturers, parts suppliers, auto dealers, parts distributors, retailers and vehicle service providers, stands united in opposition to tariffs that would have damaging effects on consumers and our nation’s economy.

David Schwietert, interim president and CEO of Alliance of Automobile Manufacturers; Cody Lusk, president of American International Automobile Dealers Association; John Bozzella, president and CEO of the Association of Global Automakers; Bill Hanvey, president and CEO of the Auto Care Association; Bill Long, president and CEO of the Motor and Equipment Manufacturers Association; Peter Welch, president and CEO of the National Automobile Dealers Association; Rufus Yerxa, president of the National Foreign Trade Council and former U.S. ambassador; and Chris Kersting, president and CEO of the Specialty Equipment Market Association, are all members of the Driving American Jobs Coalition.

Driving American Jobs represents the United States' leading auto manufacturers, parts suppliers, auto dealers, parts distributors, retailers, and vehicle service providers. Its members include the American Automotive Policy Council, the Auto Care Association, the American International Automobile Dealers Association, the Alliance of Automobile Manufacturers, the Association of Global Automakers, the Motor & Equipment Manufacturers Association, the National Automobile Dealers Association, and the Specialty Equipment Market Association.

For more information, contact Stuart Gosswein at stuartg@sema.org.

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