The Trump Administration initiated an investigation on automobile imports in May of 2018. The Department of Commerce, which undertook the investigation, submitted its report to the President in February of 2019, but the Administration has not made it public. Nevertheless, on May 17, 2019, President Trump announced his determination that U.S. imports of automobiles and certain auto parts threatened the national security. More specifically, the President concluded that these imports affect American companies’ global competitiveness and their ability to undertake research and development on which U.S. military superiority depends. These determinations, made under Section 232 of the Trade Expansion Act of 1962, give the President the broad authority to respond to these national security concerns, including the ability to unilaterally impose tariffs on the subject goods. As a result, President Trump has threatened such tariffs on a number of occasions.
It seems that this threat of tariffs, at least for the moment, is being used as leverage in an effort for the U.S. Trade Representative (USTR) to reach favorable agreements with Japan and the European Union. The Administration’s broad agenda, as reported by the Congressional Research Service, is intended to expand domestic automobile manufacturing, address bilateral trade deficits, and reduce disparities in tariff rates between U.S. and its trading partners. (Presumably, countering the potential national security threat is also on the list.) Notably, the U.S. tariffs for passenger cars is 2.5%, while the E.U. tariffs on U.S. passenger cars is at 10%. Reports are that the Administration is considering tariffs of up to 25-30% on imported vehicles and parts, excluding those from Canada, Mexico and South Korea, all of which have separate trade agreements with the United States.
The automobile industry, including the NADA, is universally opposed to the potential tariffs. Most studies indicate that auto tariffs could have significant negative effects on not just the auto industry but the U.S. economy generally. For the moment, President Trump has put the tariff decision on hold until at least November while the USTR undertakes negotiations. Accordingly, the industry will be holding its breath until then.