The Finance 202: Auto tariffs would vastly expand Trump's trade war. A decision could come at any time.
President Trump gestures to auto workers at the American Center for Mobility in Ypsilanti, Michigan earlier this year. (Bill Pugliano/Getty Images)
If you think President Trump is running out of options for expanding his trade offensive, think again. The president will more than double the total value of goods that he has already subjected to tariffs if he moves ahead with duties on auto imports.
The move has not been getting as much attention as the Trump administration’s latest tit-for-tat escalation with China, negotiations toward salvaging the North American Free Trade Agreement and the effort to forge a trade truce with the European Union. But lobbyists for the U.S. auto industry, which roundly opposes the proposed global auto tariffs, say a decision to announce them could come at any time.
Republicans on the Senate Finance Committee are set to register their objections Wednesday morning, when the panel convenes a hearing to highlight “the potential harm tariffs could have on the industry and how they may be passed along to consumers,” as Sen. Orrin Hatch (R-Utah), the committee’s chairman, put it in a release last week.
Following through with 25 percent duties on imports of all cars and car parts — which Trump advisers believe the president has been eyeing — would raise the total value of goods subject to import taxes from $285 billion to $645 billion, according to some Washington Post number-crunching.
At that point, nearly 27 percent of goods coming into the United States would face a tariff. (That number could climb still, to about 38 percent of all imports, if the Trump administration also slaps tariffs on the remainder of Chinese imports, as the president has threatened.)
Some auto industry sources and other trade watchers believe the fate of the auto tariffs is bound up in the Trump administration’s haggling with Canada over new NAFTA terms. The matter remains a sticking point for Canadian negotiators, who want a guaranteed exemption from any car levies the Trump administration might impose. The talks are approaching a deadline Trump set for the end of the month, to try to finalize a reworked agreement before a change of power in Mexico. Two industry sources tell me they believe the Trump team wants to delay an announcement on auto tariffs to maintain leverage in talks with Canada.
Beacon Policy Advisors, in a Monday note to clients, came to a similar conclusion. “As long as talks appear to still be progressing, we expect that Trump will not move forward with his threats to dissolve NAFTA or to impose auto tariffs, even if the deadline is passed,” the firm wrote. “But if talks break down as a result of the self-imposed political deadline, then there is greater risk of the auto tariffs moving closer to becoming a reality.”
A worker assembles a BMW vehicle at a plant in Greer, South Carolina. (Luke Sharrett/Bloomberg)
The matter will factor into ongoing trade disputes with Europe and Japan, as well. Trump on Monday signed a revised South Korean trade deal that the administration hopes will pave the way. It most notably tweaked the existing agreement by doubling the cap on the number of autos that U.S. companies can sell in South Korea — a fact Trump underlined at the signing ceremony.
“Mr. Trump’s threat of global auto tariffs—announced in May—has put new pressure on Japan, the largest exporter of autos to the U.S.” the Wall Street Journal’s Jacob Schlesinger and Vivian Salama report. “Many Japanese officials have concluded that some kind of new formal trade talks may be the price they have to pay to win protection from those tariffs, say people familiar with the discussions.”
Today, U.S. Trade Representative Robert Lighthizer is scheduled to meet in New York with Japanese economy minister Toshimitsu Motegi; Trump is set to huddle with Japanese Prime Minister Shinzo Abe there Wednesday, on the sidelines of the United Nations General Assembly meeting.
That morning, David Britt, who leads economic development for the Spartanburg County Council in South Carolina, will appear before the Senate Finance Committee to make a case against the tariffs. He attributes BMW’s 1991 decision to build its first plant outside Germany in Spartanburg, and the $9 billion it has invested there since, with saving a community ravaged by the decline of the local textile industry.
Britt says the benefits of that investment are now manifest in a supplier network that’s spread throughout the state and, more broadly, in South Carolina’s revived manufacturing sector. “The people who will suffer the most from these tariffs — it’s not foreign manufacturers or governments. It's the citizens of this country, of South Carolina, of Spartanburg,” Britt says. “It’s nothing more than a tax on them.”
The Peterson Institute for International Economics predicts more than 600,000 job losses nationwide if the Trump administration imposes the auto tariffs and other countries hit back.
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