U.S. Tariff Talk Worries Global Automakers

The submission to the White House by the U.S. Department of Commerce of a report recommending whether and how the U.S. should impose tariffs on imported automobiles and automobile parts on national security grounds has provoked significant concern worldwide.

President Donald Trump (below, left) has 90 days from Feb. 17 (to mid-May) to decide whether to impose the tariffs under Section 232 of the Trade Expansion Act, which allows the department to investigate whether the imports compromise national security.

Europe’s automakers have reacted angrily, stressing that tariffs would hit U.S. producers equally hard. “Imports of cars and auto parts from the European Union (EU) clearly do not pose a national security risk to the United States,” says Erik Jonnaert, secretary general of the European Automobile Manufacturers’ Assn.

Sigrid de Vries, secretary general of the European Association of Automotive Suppliers, agrees Section 232 tariffs could seriously harm “the automotive industry, workers and consumers in Europe and the U.S.” She urged the Department of Commerce to publish the report quickly, “so that the findings and recommendations can be evaluated quickly so that uncertainty for business can at least be partly alleviated.”

The trade flows at risk in Europe are certainly huge. Trade data from EU statistical agency Eurostat indicate that €38.3 billion ($43.5 billion) worth of EU-made cars were exported to the U.S. in 2017. Also, €1.1 billion ($1.25 billion) worth of trucks and other special-purpose motor vehicles were shipped across the Atlantic, along with €7.6 billion ($8.6 billion) worth of parts and accessories.

Germany would be a big loser from tariffs with €21.6 billion ($24.5 billion) worth of cars exported to the U.S. in 2017. The U.K. would also suffer; it shipped €7.6 billion worth of cars to the U.S. in 2017. Moreover, any imposition of U.S. tariffs would come as the U.K. auto sector suffers should the region crash out of the EU without a Brexit deal on March 29.

Moreover, the EU likely will respond with its own retaliatory tariffs, says Margaritas Schinas, chief spokesperson for the EU’s executive branch, the European Commission: “Were this report to translate into actions detrimental to the European Union, the European Union would react in a swift and adequate manner.”

These potential responses, and the increase in input costs should tariffs be levied on parts imports, is focusing attention on the U.S. auto sector.

America’s Motor & Equipment Manufacturers Assn. (MEMA) has said it also wants details of the report so the auto sector can review the recommendations and advise how duties, should they be proposed, will risk losing jobs, increase auto retail prices and depress investment in the American auto sector.

Its concern is that tariffs may cover imports of components, such as electronic control units, bearings and valves processed into higher-technology or more complex parts in America. Tariffs under a Section 232 order might increase the cost of vehicles sold in the U.S. by $7,000, MEMA warns.

The American Automotive Policy Council (AAPC), which represents Fiat Chrysler, Ford and General Motors, says Section 232 tariffs and the retaliatory tariffs on American autos and parts exports they might provoke “would undermine – not help – the economic and employment contributions” the Detroit Three make to the U.S. economy.

The Japanese government has reacted more coolly, saying it believes it has a deal with President Trump that will exempt Japanese companies from any such duties. In 2016, the U.S. bought 1.73 million units, nearly 40% of Japan’s vehicle exports, according to forecaster Stratfor Enterprises.

Toshimitsu Motegi, the minister in charge of U.S. trade negotiations, says Trump has assured Japanese Prime Minister Shinzo Abe the U.S. will not impose additional auto-sector tariffs on Japan.

The Japan Automobile Manufacturers Assn. (JAMA) seems less sure, with Chairman Akio Toyoda saying simply he hopes the president will avoid tariffs.

“We strive to enhance the international competitiveness and sustainable development of the U.S. automotive industry through R&D on new technologies in the U.S. and through productivity improvements and workforce development initiatives,” says Toyoda, also Toyota’s president.

Japanese exports of vehicles “clearly do not threaten United States national security,” he says.

Moreover, tariffs would “disrupt the operations of U.S. vehicle and auto parts manufacturers as well as auto dealerships,” Toyoda says, with JAMA noting the potential impact on Japanese car companies operating 24 manufacturing plants and 44 R&D centers across 19 U.S. states, directly employing more than 92,000 people.

There is concern in South Korea, too. Of the 4.03 million cars manufactured in the country in 2018, 20.1% were shipped to the U.S., according to the Korea Automobile Manufacturers Assn.

“Korea’s vehicle exports to the U.S. will be reduced by 19.3% and auto parts exports will be reduced by 27.5% if the U.S. imposes 25% tariffs,” Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics & Trade, tells Wards.

“GM Korea and Renault Samsung will not be able to export anything to the U.S., and likewise it will be for Korean-made car parts, about 70% of them destined for assembly in Korean-owned factories in the U.S.,” he adds.

Lee notes Seoul already had agreed in March 2018 to revise the U.S.-Korea Free Trade Agreement, extending U.S. tariffs on South Korean pickup trucks by 20 years until 2041. “If the new tariffs come, another re-negotiation would become impossible to accept for the Korean government,” should that be demanded by Washington, he says.

Only Canada and Mexico can rest (relatively) easy. The two countries negotiated effective exemptions from Section 232 automotive tariffs under the new U.S.-Mexico-Canada Agreement – a deal nonetheless not yet ratified by Congress.

– with Sara Lewis in Brussels, Julian Ryall in Tokyo and Jens Kastner in Hamburg