WASHINGTON – Caught in a sprawling trade dispute with U.S. rival China, President Donald Trump decided against declaring commercial war on America’s friends: The White House said Friday that he is delaying for six months any decision to slap import taxes on foreign cars, a move that would hit Europe and Japan especially hard.
Trump is hoping to use the threat of auto tariffs to pressure Japan and the European Union into making concessions in ongoing trade talks.
“If agreements are not reached within 180 days, the president will determine whether and what further action needs to be taken,” White House press secretary Sarah Sanders said in a statement.
The president has dusted off a rarely used weapon in the U.S. trade war arsenal – Section 232 of the Trade Expansion Act of 1962 – to investigate whether auto imports are a threat to U.S. national security, justifying tariffs. The Commerce Department sent its recommendations on the issue to the White House in February. They have not been made public but are widely assumed to include the possibility of imposing auto tariffs.
Public hearings last year revealed that support for taxing auto imports is virtually nonexistent outside the White House. Not even American automakers support it.
“The case remains clear – cars are not a national security threat,” the Alliance of Automobile Manufacturers, an industry trade group, said in a statement. “We are deeply concerned that the administration continues to consider imposing auto tariffs. By boosting car prices across the board and driving up car repair and maintenance costs, tariffs are essentially a massive tax on consumers.”
Trump used the national security justification last year to impose tariffs on imported steel and aluminum. One of the motivations was to coerce Canada and Mexico into agreeing to a rewrite of North American free trade pact. In fact, the Canadians and Mexicans did go along with a revamped regional trade deal that was to Trump’s liking. But the administration has so far refused to lift the taxes on their metals to the United States anyway.
In a statement Friday, the White House said that Commerce had concluded – and the president agreed – that auto imports “impair the national security of the United States.”
Trump directed U.S. Trade Representative Robert Lighthizer to negotiate with the EU, Japan and possibly other countries to address the national security concerns and report back in six months.
To Philip Levy, senior fellow at the Chicago Council on Global Affairs, it sounds as if Trump wants “to convince the Europe and Japan to send us fewer autos.” Japan had agreed in the 1980s to such “voluntary export restraints,” but they are now restricted by the World Trade Organization.
Taxing auto tariffs would mark a major escalation in Trump’s aggressive trade policies and likely would meet resistance in Congress. The United States last year imported $192 billion worth of passenger vehicles and $159 billion in auto parts.
“I have serious questions about the legitimacy of using national security as a basis to impose tariffs on cars and car parts,” Iowa Republican Sen. Chuck Grassley, chair of the Senate Finance Committee, said in a statement Friday. He’s working on legislation to scale back the president’s authority to impose national security tariffs under Section 232.
Meanwhile, Trump is locked in a high stakes rumble with China. The U.S. accuses Beijing of stealing trade secrets and forcing American companies to hand over technology in a head-long push to challenge American technological dominance. The two countries have slapped tariffs on hundreds of billions of dollars in each other’s products. Talks broke off last week with no resolution.
The hostilities between the world’s two biggest economies have weighed heavily the past couple of weeks on the U.S. stock market, threatening a long rally that Trump touted as a vindication of his economic policies. Opening a new front in the trade wars against EU and Japan likely would have worried investors even more.
“We’re already on kind of a multi-front trade war, so expanding that further into automotive may be a little bit too much for the U.S. economy to bear,” said IHS senior economist Peter Nagle, who focuses on the auto industry.
U.S. automakers ostensibly would benefit from a tax on their foreign competitors. But many U.S. automakers depend on imported parts that could be subject to Trump’s tariffs and could become more expensive. Moreover, U.S. auto exports likely would have retaliation if the United States started taxing imported autos.
Germany, home to a powerful auto industry that includes manufacturers such as Volkswagen, Daimler and BMW, welcomed the decision. Economy Minister Peter Altmaier said that “it is an important signal for the German and European economy that a further escalation of the trade conflict could be prevented.”
Altmaier underlined the European Union’s willingness to negotiate reducing auto tariffs on both sides of the Atlantic to zero. He said that “we are sticking to this aim, even though the U.S. government for its part has advocated limiting auto imports.”
“We regret that the U.S. side now classifies auto imports as a threat to national security,” Altmaier said in a statement. He said Germany considers that incompatible with WTO rules.
Levy, who was also an economist in President George W. Bush’s White House, said that by extending deadlines as he did Friday Trump always “leaves room for the Pollyannas” who want to believe the tariffs are a negotiating tool and will go away once the U.S. negotiates agreements with America’s trading partners.
But Trump himself has repeatedly expressed enthusiasm for import taxes, even calling himself a “Tariff Man.” And his tariffs, as the Canadians and Mexicans can attest, have a way of sticking around.
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