President Donald Trump on Friday delayed a decision to slap duties or quota restrictions on imports of automobiles and auto parts, but said he still has the right to impose them in another six months as his administration pursues trade deals with the European Union and Japan.
“I concur in [Commerce Secretary Wilbur Ross’] finding that automobiles and certain automobile parts are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States,” Trump said in a proclamation outlining his decision.
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Trump has been considering hitting the EU, Japan and other foreign auto suppliers with a 25 percent tariff under a law that allows him to impose trade restrictions on the basis of national security.
By delaying his decision for six months, Trump avoids launching another damaging trade war with the EU and Japan at the same time that financial markets are already spooked by his escalating trade fight with China. However, he now has positioned himself for another decision on auto tariffs in November, one year before voters go to the polls to vote on whether to give him a second term in office.
Imposing national security tariffs on auto and auto-part imports would parallel his controversial decision last year to put duties on steel and aluminum imports from around the world using the same law.
On Friday, a deal was reached to lift the steel and aluminum duties on Canada and Mexico, a move that will help the administration win support for passage of a new trade agreement to replace the 25-year-old NAFTA. But the metals duties are staying in place on most other nations.
A 25 percent tariff on all autos and auto-part imports would be one of Trump’s largest trade actions to date, second only to the tariffs he has imposed on $250 billion worth of Chinese goods. The United States imported $174 billion worth of passenger cars, $157 billion of parts and $43 billion of other vehicles in 2018.
The United States’ two biggest suppliers, Canada and Mexico, negotiated quotas as part of a new trade deal. That will exempt their autos and auto parts from any new tariffs.
Trump also seemed to indicate Friday that South Korea could be exempt from any future auto tariffs and quotas, after it recently renegotiated its free trade pact with the U.S.
A group representing Ford, General Motors and Fiat Chrysler applauded Trump’s decision to delay any action.
“We will continue to urge the administration to reject imposing higher auto tariffs,” Matt Blunt, president of the American Automotive Policy Council, said in a statement. He added that imposing new tariffs “would weaken global competitiveness and invite retaliation from our trading partners, which could harm jobs and investment in the U.S.”
Another organization representing foreign-brand automakers like Toyota, Kia and Aston Martin called the Trump administration’s finding of a national security threat “absurd.” It also took aim at the emphasis in Trump’s proclamation on supporting “American-owned” automakers.
“International automakers develop and build more than half of the vehicles made in America each year. An American engineer working for a ‘foreign’ auto company in Michigan is no more of a national security threat than an American engineer working for an ‘American-owned’ auto company in Michigan,” said John Bozzella, president and CEO of Global Automakers.
Trump has long complained about what he sees as unequal tariffs when it comes to automobiles. While the United States imposes just a 2.5 percent tariff on foreign autos, the European Union hits them with a 10 percent duty and China imposes a 15 percent tax.
Japan does not charge a tariff, but the United States contends that Tokyo uses non-tariff barriers that thwart sales of U.S. cars in that market.
In the proclamation on Friday, Trump directed U.S. Trade Representative Robert Lighthizer to pursue the negotiation of agreements with the EU, Japan and other countries that address the alleged national security threat posed by auto imports.
Lighthizer was directed to update the president on the status of those talks within 180 days.
European Union Trade Commissioner Cecilia Malmström said the EU would not agree to a quota to avoid future tariffs or enter into talks with the United States on an agreement that would restrict its auto exports.
“We completely reject the notion that our car exports are a national security threat,” Malmström wrote on Twitter. “The EU is prepared to negotiate a limited trade agreement [including] cars, but not WTO-illegal managed trade.”
The EU retaliated on billions worth of U.S. exports after Trump imposed steel and aluminum tariffs last year, and has threatened to do the same if he imposes tariffs or quota restrictions on the EU’s auto exports to the United States.
Malmström also said she would discuss the issue with Lighthizer next week in Paris during the spring meeting of the Organization for Economic Cooperation and Development, as well as with European trade ministers on May 27.
Japanese Minister for Economic and Fiscal Policy Toshimitsu Motegi told reporters in Tokyo on Friday that he was reassured by Lighthizer that the U.S. would not seek to cap auto imports from Japan in bilateral trade talks.
As the two sides look toward those negotiations, the U.S. Agriculture Department announced Friday that Japan agreed to lift remaining restrictions on imports of U.S. beef that date back to the discovery of mad cow disease in the U.S. cattle herd in 2003. The move could boost U.S. beef exports to Japan by up to $200 million per year, USDA said.
A senior Republican welcomed Trump’s decision to put auto tariffs or quota restrictions on hold.
“As the president knows, I’m not a fan of tariffs,” Senate Finance Chairman Chuck Grassley (R-Iowa) said in a statement. “And I have serious questions about the legitimacy of using national security as a basis to impose tariffs on cars and car parts.”
Grassley also said he would continue working on legislation to update the law Trump has used to justify potential auto tariffs — Section 232 of the 1962 Trade Expansion Act — in order to give Congress a “meaningful role” in any decision to impose duties intended to protect national security.
The Commerce Department issued a report to the White House in February which laid out evidence that imports of autos and auto parts represent a risk to national security. The report still has not been released to the public.
Trump has viewed the threat of tariffs as leverage to negotiate broader trade deals with the EU and Japan, with the ultimate goal of reducing the trade surpluses those two economies have with the U.S.
Trump’s proclamation provides a glimpse into how Commerce justified labeling imports of autos and auto parts a national security risk.
“The rapid application of commercial breakthroughs in automobile technology is necessary for the United States to retain competitive military advantage and meet new defense requirements,” the proclamation said.
The proclamation added that the U.S. defense industrial base depends on the “American-owned automotive sector” for development of technologies essential to military superiority. Foreign imports have eroded the ability of U.S. companies to compete and research and develop new technologies, the proclamation said.
“The lag in R&D expenditures by American-owned producers is weakening innovation and, accordingly, threatening to impair our national security,” the proclamation stated.