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U.S. Starts Probe to Consider Tariffs on Car, Truck Imports

Andrew Mayeda, Ryan Beene
Workers install the control panel on a Honda Fit vehicle on the production line after the opening ceremony for Honda Motor Co.'s new plant in Celaya, Mexico, on Friday, Feb. 21, 2014. Honda Motor Co., following record auto production in North America, opened its seventh auto-assembly plant as the Japanese carmaker seeks to boost sales in the region with locally sourced vehicles. Photographer: Susana Gonzalez

President Donald Trump’s administration has started an investigation into whether car and truck imports threaten national security, a move that could lead to new U.S. tariffs on foreign vehicles.

“Core industries such as automobiles and automotive parts are critical to our strength as a nation,” Trump said in a statement late Wednesday. An investigation would unfold under Section 232 of the 1962 Trade Expansion Act, the same clause the U.S. invoked in imposing global tariffs on imported steel and aluminum on the grounds they imperil U.S. security.

The administration is considering imposing an additional tariff on vehicles of up to 25 percent, according to a person familiar with the matter who asked not to be identified.

Imposing new duties on automobile imports may further inflame tensions with America’s biggest trading partners, adding to a series of U.S. threats that have roiled financial markets and upset traditional allies. The announcement comes as Republican lawmakers prepare for midterm elections in November that will determine whether the party retains its majority in both the House of Representatives and Senate.

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Trump has made protecting American manufacturing workers -- and the iconic auto industry, in particular -- a keystone of his administration. Wins in manufacturing states such as Michigan and Ohio were key to his victory in 2016.

Read more on the car-makers that would be hardest hit by an U.S. import crackdown

The auto-import probe was panned by open trade supporters.

“I fear that they’ve now crossed the Rubicon into wholesale protectionism.,” said Rufus Yerxa, president of the National Foreign Trade Council, a trade policy group representing U.S. companies. “Lots of countries have resorted to protectionism when their economies were doing badly. It almost never works. But Trump may be the first leader ever to do it when the economy is booming. He’s trying to fix a problem that ain’t broke. The auto industry is healthy.”

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The Commerce Department, which is leading the probe, said in a statement that automobile manufacturing “has long been a significant source of American technological innovation.”

The investigation “will consider whether the decline of domestic automobile and automotive parts production threatens to weaken the internal economy of the United States, including by potentially reducing” everything from research and development to skilled jobs, and more advanced manufacturing processes like electric motors and autonomous vehicles, according to the Commerce department.

The department added it will publish a notice soon announcing a hearing date and inviting comment from businesses and the public.

Mexico exports the most passenger cars to the U.S., followed by Canada, Japan, Germany and South Korea, according to U.S. data . Industry observers saw this latest move as a U.S. tactic to pressure Mexico and Canada to move quickly to agree to an overhaul the North American Free Trade Agreement. Rules for regional content in cars have been one of the major sticking points in the Nafta discussions.

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Almost a quarter of autos sold in the U.S. are imported, according to government figures. The U.S. levies a 2.5 percent duty on imported passenger cars and a 25 percent tariff on pickup trucks from countries that are not parties to free trade agreements.

The Trump administration is already embroiled in trade disputes on a number of fronts.

The U.S. is in talks with China on a deal to avoid tit-for-tat tariffs between the world’s two biggest economies. In a tweet Wednesday morning, the president said a trade agreement with China may be “too hard to get done” and probably will require a “different structure.” Trump’s remarks damped expectations that the two sides may have reached a truce, after Treasury Secretary Steven Mnuchin said the U.S. had put its tariff plans "on hold."

China announced on Tuesday that it will cut the duty on passenger cars to 15 percent, from the current 25 percent, as of July 1.

The president signaled earlier Wednesday on Twitter that an important announcement was imminent to help the U.S. car-manufacturing industry. “There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!” Trump said in the tweet.

Section 232 gives the U.S. president the power to impose tariffs on imports that imperil national security. It has been used sparingly by previous administrations. It’s separate from the Section 301 investigation into China’s intellectual property practices, a clause in a 1974 trade law meant to protect U.S. industries from unfair competition.

Since the 2016 election campaign, Trump has repeatedly threatened to slap new tariffs on imported cars.

He revisited the possibility again on May 11, when he floated the idea of a 20 percent tariff on imported autos during a White House meeting with senior executives of 10 major automakers, a person familiar with the meeting said. He also suggested that imports should have to achieve tougher emissions standards than vehicles assembled in the U.S., the person said.

But it may be tougher for the U.S. to make a national security case with a consumer product such as cars, than it did with steel and aluminum, two materials used in military equipment.

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