Trade War Watch: Automakers Respond to U.S. Import Investigation, Japan Keeps the Faith


Audi Q2 factory production

President Trump announced a security investigation into auto imports last week, tasking Commerce Secretary Wilbur Ross with the job. His goal will be to determine what effects imported vehicles have on the national security of the United States under Section 232 of the Trade Expansion Act of 1962 — which sounds like a monumental and rather complex task.

Basically, Ross will examine whether or not the U.S. can get away with escalating automotive tariffs. That’s a touchy subject, considering how contentious global trade has become in recent months. Worse yet, the 80-year-old commerce secretary will have to continue promoting American businesses and industries outside its borders while deciding on an issue few trade partners will be happy with.

Automakers aren’t thrilled either. After Trump announced the investigation, the Association of Global Automakers and Alliance of Automobile Manufacturers both said they didn’t believe vehicle imports posed a national security risk. “To our knowledge, no one is asking for this protection. If these tariffs are imposed, consumers are going to take a big hit,” said John Bozella, President of Global Automakers, in a statement. “This course of action will undermine the health and competitiveness of the U.S. auto industry.”

The Alliance of Automobile Manufacturers, which includes domestic manufacturers, was similarly concerned. In a statement, it wrote:

This investigation under Section 232 is a process that has rarely been used and traditionally has not focused on finished products. We are confident that vehicle imports do not pose a national security risk to the U.S. Last year, 13 domestic and international automakers manufactured nearly 12 million vehicles in the U.S. The auto sector remains the leading exporter of manufactured goods in our country. During the last 25 years, 15 new manufacturing plants have been launched in the U.S. — resulting in the creation of an additional 50,000 direct and 350,000 indirect auto jobs throughout America — and new plants are on the way. We urge the Administration to support policies that remove barriers to free trade and we will continue to work with them and provide input to achieve that goal.

Presently, the United States imposes a 2.5 percent tariff on passenger cars and a 25 percent import fee on light trucks. While China has promised to reduce its own passenger vehicle tariffs from 25 to 15 percent this summer, the European Union is expected to to stick with its 10 percent import duty on cars and trucks for the foreseeable future.

Japan, which has has more skin in the game than most, has a lot to lose if the U.S. imposes new tariffs. Japanese Prime Minister Shinzo Abe said on Monday he would seek to convince President Trump of the crucial role his country’s automakers play in helping the U.S. economy thrive.

“Japanese automakers have created jobs and made huge contributions to the U.S. economy,” Abe told parliament, when asked how Japan would respond to the United States’s national security investigation.”As a country that prioritizes a rule-based, multilateral trade system, Japan believes that any steps taken on trade must be in line with World Trade Organization rules.”

Japanese automakers build roughly twice as many cars within the United States than they import. Still, Trump has been critical of American cars’ inability to take off in the Land of the Rising Sun. We should add that issue is incredibly complex and has less to do with tariffs than it does the public perception of American autos, plus high costs associated with establishing  and running dealer networks inside Japan.

At any rate, Abe says he’ll remain committed to maintaining a strong relationship between Japan and the United States and will continue to encourage the Western nation to join the Trans-Pacific Partnership. “Japan has explained to the United States its stance that TPP is the best format for both countries. We will continue to talk with the United States based on this view,” he said.

[Image: Audi]      [Source: Reuters]