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Deadline missed, but auto tariff threats remain

November 29, 2019
President Trump’s decision to let a deadline to impose tariffs on foreign auto imports lapse without taking action has left the auto industry puzzled over the White House’s next move—which could include restarting the clock with a new levy action.

The president had until Nov. 13 to decide whether to apply the tariffs following a Commerce Department finding that imported vehicles could pose a risk to national security. The White House hasn’t announced a decision.

Experts on trade law said Trump still might seek to impose the tariffs despite the missed deadline, but such an action would be vulnerable to a strong legal challenge for not complying with Section 232 of the Trade Expansion Act of 1962.

"There’s a very good challenge that could be brought if they now decide to impose tariffs" under Section 232, said Jennifer Hillman, a senior fellow at the Council on Foreign Relations and a former U.S.-appointed World Trade Organization judge.

Alternately, Trump could decide to abandon Section 232 action and pursue tariffs under Section 301 of the Trade Act of 1974, which is the same mechanism the president used to impose tariffs on Chinese imports.

Under Section 301, the U.S. first would have to determine that a foreign country pursued unfair trade practices. If that finding is made, Trump would have a wide berth to impose tariffs, if he determines negotiations with the offending party are unsuccessful. The tariffs also might be more defensible on unfair-trade grounds than if they were imposed as a matter of national security.
 
Several people in the auto industry said they considered a Section 301 action to be a genuine threat. But without any clear signals from the White House, industry executives acknowledge it is a guessing game.
 
One U.S.-backed executive for a Japanese automaker said the Nov. 13 deadline’s passing was a positive signal, but the threat of tariffs remains.

"We feel better but we’d never tell Japan that we’re good," the executive said. "The administration is too unpredictable."

Importers of auto parts, which also would be subject to tariffs, also are taking nothing for granted.

"I don’t think anything is off the table," said Ann Wilson, vice president of governmental affairs at the Motor and Equipment Manufacturers Association, a trade group for automotive suppliers.
 
European Union officials are taking a wait-and-see view on the matter.

"The good news is that the U.S. did not announce any new tariffs on EU cars or car parts," European Trade Commissioner Cecilia Malmstrom said Nov. 21 in Brussels, following a discussion with the bloc’s ministers on EU-U.S. trade relations. "Of course the threat is not entirely gone, and we are mindful of that."

While the Trump administration hasn’t formally communicated that it wouldn’t impose tariffs on U.S. auto imports from Europe, Malmstrom said the EU considers the lapsed deadline as an indication that Washington won’t enact new duties. She added that Trump also would face "severe legal limitations" if he decided to impose levies, as well as public backlash from U.S. industries and Congress.

The EU would strike back at U.S. auto tariffs by immediately levying duties on American exports worth $38.8 billion annually, Malmstrom told lawmakers at the European Parliament in July. European officials support a revamp of trans-Atlantic ties, seeking to avoid a trade fight with the U.S. and to build on shared interests such as combating China’s market-distorting policies. But they also are united against unilateral actions by Trump.

"We want a continuation of the dialogue," Dutch Foreign Trade Minister Sigrid Kaag said Nov. 21. "It’s very important that we act on tariffs that we do not accept and we have continuous countervailing measures."

The White House, the Office of the U.S. Trade Representative and the Commerce Department didn’t respond to requests for comment.

White House officials have sent signals for months that imported-car tariffs are a low priority. Automobile tariffs would risk alienating the president’s allies in Congress, especially Southern Republicans who represent states with foreign-owned auto factories.

U.S. automakers, which source foreign-made parts that come from global supply chains, also oppose the tariffs.
Pushing forward with tariffs also could weaken the administration’s ability to get Congress to pass the U.S.-Mexico-Canada Agreement that the president negotiated last year.

"Many of the president’s advisers recognize the best way to achieve his goal of increasing auto investment in the United States is to pass USMCA," said Clete Willems, who used to work on trade issues in the Trump administration and now is a partner at law firm Akin Gump.

Canada and Mexico won protections from the tariffs in negotiating the USMCA. But were the tariffs to go into effect against the EU or Japan, they would have a marked impact.

Combined automotive imports from Japan and the EU accounted for nearly $120 billion of goods last year, or roughly a third of total U.S. auto imports, according to Commerce Department data.

Tariffs on imported vehicles and parts that aren’t from Mexico, Canada and South Korea would increase the estimated average cost of a new vehicle by about $2,500, according to the latest analysis by the Center for Automotive Research.
 
 

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