US probe into car imports might lead to new tariffs

2017 BMW 5-Series production in Dingolfing, Germany

Just as China prepares to ratchet down tariffs on car imports, President Donald Trump on Wednesday ordered an investigation into whether car imports into the United States are hurting national security.

Commerce Secretary Wilbur Ross has since initiated an investigation under Section 232 of the Trade Expansion Act of 1962, which grants the president the ability to restrict imports considered a threat to national security. The type of investigation is the same the Trump administration took before implementing tariffs on aluminum and steel imports back in March.

“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Ross said in a statement. “The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.”

The evidence Ross is referring to includes an increase in imports from 32 percent of the market two decades ago to 48 percent today. There’s also been a 22 percent decline in the number of employees involved in car production between 1990 and 2017, though increased automation plants has also played a major role in the decline.

There have been reports of the Trump administration considering new car tariffs as a response, possibly as high as 25 percent, though there’s been no official comment in that direction. Should new tariffs be introduced, it will mean higher prices on imports, unless a manufacturer absorbs the cost. This could also lead to less choice. The best example is the so-called chicken tax which imposes a 25 percent tariff on light trucks, which is why you don’t see imported pickups.

There always the possibility Trump is talking up the possibility of new car tariffs as a negotiating tactic for the ongoing North American Free Trade Agreement talks with Canada and Mexico. The move might also be a way for Trump to build up support with workers and unions ahead of November’s midterm elections.

The next step is for a notice to be published in the Federal Register announcing a hearing date and inviting comment from industry and the public to assist in the investigation. Stay tuned.

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