As we mentioned in our blog of last August, under the authority granted to the Trump Administration under Section 232 of the Trade Expansion Act, the Commerce Department found that U.S. imports of automobiles and certain auto parts threatened the national security by affecting the global competitiveness of American Companies and undermining their ability to perform the research and development that leads to our military superiority. Under the Act, a deadline of November 13, 2019 was set for the determination of whether to impose a 25% tariff on the import of those automobiles and parts from the European Union (EU). Because the deadline ran out without action, it was widely assumed that the Trump Administration had simply dropped the tariff threat. Last month, however, it became clear that the threat of the tariffs remains very much alive. During January’s World Economic Forum in Davos, Switzerland, President Trump renewed his stance to carry through with 25% tariffs if he is unable to strike a trade agreement with the EU that he believes to be fair to the United States. While the President did not set a specific new deadline for such a deal to be reached, he stated that European officials “know what the deadline is.”
According to studies undertaken by the Center for Automotive Research, the proposed 25% tariff could add up to $6,875 to foreign-manufactured vehicles, and would push up prices in the overall market by an average of $4,400 per car. Several economists have expressed the concern that this significant rise in car prices will suppress sales and push buyers with modest incomes out of the new car market. For their part, Europeans, particularly the Germans, have indicated that they will retaliate in the event that the Trump Administration imposes such sanctions.
Complicating matters, if tariffs are, in fact, imposed, there exists a technical legal issue that would likely end up in the courts. Tariff opponents argue that Section 232 of the Trade Expansion Act required that the Administration act by the November 13 deadline (i.e., within 270 days from the date the Commerce report under Section 232 was delivered to the White House last February). Nevertheless, even if such a challenge were to succeed, it would likely only delay matters. The White House has other options at its disposal, such as the use of the International Emergency Economic Powers Act, which gives the President broad authority to respond to an “unusual and extraordinary threat” to our economy or national security. Given the broad interpretation of this authority, together with the courts’ reluctance to take up challenges to the Executive branch’s power in foreign affairs, it would appear that the ultimate outcome of any challenge would favor the White House.
The automotive industry, which almost universally opposes the tariffs, will have to continue in a state of limbo for now.