Trump could use the 2019 investigation to justify tariffs against auto imports

Former U.S. officials and industry experts say that Donald Trump will likely use the investigation he conducted during his first term to justify impending auto tariffs. Trump told reporters on Monday at the White House that the long-promised auto tariffs could be announced in the "next few days". This is even before the April 2 announcement of reciprocal tariffs against the countries responsible for most of the U.S. Trade deficit.

The White House did not provide a specific timetable or any details about the anticipated tariffs. When asked about the timing of the announcement, an administration official said: "I would take him at his words."

Bloomberg News reported the announcement of auto tariffs could be imminent.

As early as Wednesday

A 25% auto import tariff - which Trump floated in February – would shock a global auto industry already reeling under the uncertainty created by Trump's rapid-fire threats of tariffs and his occasional reversals.

The Center for Automotive Research says that tariffs could increase the price of a new car by thousands of dollar, affecting sales of new vehicles and leading to job losses. This is because the U.S. automotive industry relies heavily on imported parts.

In 2024, the U.S. will import $474 billion in automotive products, including $220 billion worth of passenger cars. Mexico, Japan South Korea Canada and Germany were all close U.S. Allies.

Trump told reporters in February that his administration would impose auto tariffs of "around 25%" but he agreed later to exempt cars from Canadian and Mexican tariffs. This was due to pressure from three major U.S. automobile manufacturers.

U.S. commerce secretary Howard Lutnick told Fox Business last week that there would be no exceptions to the auto tariffs. This could cause tensions with countries such as Japan and South Korea, who have trade agreements and do not charge tariffs on U.S. vehicles. Trump has been raging against unfair treatment for U.S. auto exports on foreign markets. He often singles out the European Union which charges a duty of 10% on imported vehicles, four times that of the U.S. 2.5% tariff. The U.S. collects a 25 percent tariff on pickup trucks imported from other countries than Mexico and Canada. This tax makes these vehicles very profitable for Detroit automakers.

GROUNDWORK DONE FOR QUICK A ACTION

In 2019, the Commerce Department completed an investigation of foreign auto imports in accordance with Section 232 of Trade Expansion Act of 1964. The Department found that "excessive imports" of foreign autos could weaken the domestic industrial base, and even threaten national security.

The report said that the U.S. Defense Industrial Base is dependent on American automakers to develop high-tech products for military vehicles. It also stated that the loss of market share has eroded investment in new cutting-edge technologies.

The report suggested three possible remedies: negotiations with other countries; tariffs up to 25% on automobiles and certain parts, and tariffs up to 35% for light utility vehicles.

Trump threatened to impose 25% tariffs on cars at the time, but he never took action. He allowed the tariff authority resulting from the investigation to expire. However, trade lawyers have said that the administration could argue the findings of the investigation are still relevant.

Ryan Majerus is a former Commerce Department employee now working at the law firm King & Spalding. He said that the Trump administration can use the Section 232 autos report and its recommendations as a basis for tariffs.

He said that they were at a stage where they could implement their report quickly, and rely on the success of the Section 232 litigation from the first term. Trump could also launch a fresh investigation, determine the 2019 key findings to be the same and reset tariff authority. A senior executive in the industry said that Trump could also revive a 1930 law that allowed him to impose tariffs of up to 50 percent on imports that were found to be discriminatory against U.S. trade.

Beth Baltzan who was a senior advisor to the former U.S. trade representative Katherine Tai under the Biden administration said that a higher rate of tariff would encourage those making cars in North America, to select more U.S. components to take advantage of the tariff-free U.S. Mexico-Canada Trade Agreement.

She said that the current 2.5% rate was so low, producers just paid it. The higher 25% tariff on truck parts worked to keep components sourced in North America. The tariff wall actually drives the North American sourcing patterns that the pro-American manufacturers want.

She said that if Trump's aim was to lower tariffs in a reciprocal manner, it would be a mistaken assumption, given the current trade flows, and the "profitability of the North American market." (Reporting and editing by Dan Burns, Paul Simao and David Shepardson. Additional reporting by David Shepardson.

(source: Reuters)