Wed | Nov 14, 2018

Tariffs on imported cars could harm US economy, auto industry

Published:Sunday | September 30, 2018 | 12:00 AM
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The Trump administration's new tariffs on aluminum and steel and the threat of more duties on imported cars and car parts will weaken the US economy and inflict serious damage on the nation's auto industry, a panel of trade analysts warned earlier this month.

Americans will pay thousands of dollars more for new cars and trucks as a result of the tariffs, and as many as 700,000 workers in the auto industry could lose their jobs, the analysts told a Senate committee.

Tariffs are not only a terrible idea, "they're self-destructive," said Bryan Riley, director of the National Taxpayers Union's Free Trade Initiative.

With "sloppily applied tariffs" as the centrepiece of the administration's trade policy, "we can expect to get all of the pain from higher import prices but little of the gain" that would come from a more strategic levying of duties, said Thea Mei Lee, president of the Economic Policy Institute, a non-partisan think tank based in Washington.

The analysts made their dire predictions during a hearing before the Senate Health, Education, Labour and Pensions Committee, which is looking into the tariffs' effect on the auto industry.

The committee's chairman, Senator Lamar Alexander, said in an interview that he hopes the hearing will demonstrate not only the dangers of "piling tariffs on top of tariffs," but that zero tariffs would be the best approach for the auto industry and other manufacturers.

In Tennessee, the number of auto jobs has nearly doubled, and exports and family incomes have increased under the North American Free Trade Agreement, which eliminated most tariffs between the United States, Mexico, and Canada. A third of the state's manufacturing workforce is now employed in the automobile industry.

"All of the evidence supports that a zero-tariff policy under NAFTA has helped raised family income in Tennessee," Alexander said. "And that policy would be good to apply to our relationships with other countries in the world, particularly our allies like Europe and Japan and South Korea."

Though President Donald Trump said in June that his goal is "no tariffs, no (trade) barriers," he has imposed a 25 per cent tariff on imported steel and a 10 per cent tariff on imported aluminum, arguing that the dumping of cheap imported metals has harmed US companies and jobs.

 

25 per cent auto tariff

 

Trump also instructed the Commerce Department in May to look into the possibility of imposing a 25 per cent tariff on foreign autos and parts by declaring them a threat to national security - the same justification he used to levy the duties on aluminum and steel. In July, he appeared to back off the threat to impose tariffs on cars from the European Union after meeting with European Commission President Jean-Claude Juncker.

Regardless, the Commerce Department had been expected to issue its report on possible auto tariffs in August but later said it needed more time.

The tariffs on aluminum and steel already are rippling through the auto-supply chain, said John Bozzella, president and chief executive officer of the Association of Global Automakers, a trade group that represents the US operations of international car manufacturers, equipment suppliers and others.

The price of steel has jumped 50 per cent since the tariffs were announced, Bozzella said.

A 25 per cent tariff on foreign cars and parts would cause a five per cent drop in employment in the auto sector, which translates into more than 600,000 lost jobs, if US trading partners retaliate as expected, according to an analysis by the Peterson Institute for International Economics.

Another 117,000 dealers also could lose their jobs, concluded a separate study by the Center for Automotive Research.

What's more, a tariff on auto imports and parts could cause car prices to jump by US$2,100 for compact cars and nearly US$7,000 for some SUVs, the Peterson Institute estimates.

When used strategically, tariffs can be an important and useful tool, providing leverage to address unfair trade practices such as currency manipulation and intellectual property theft, Lee said.

"However, the Trump administration's tariffs have been erratically implemented, inconsistently messaged, and sometimes, apparently motivated by politics or whim," she said. "This administration appears to have no overarching strategy or goal in sight."

Senator Doug Jones called the Trump administration's trade policy "totally incoherent" and said it is hurting not only the auto industry, but also businesses and farmers.

Congress has "an obligation to work to change that incoherent policy or at least to try to do what we can to do that," he said.

Stephen Moore, an economist with The Heritage Foundation's Project for Economic Growth, said the administration's trade strategy lacks coherence and is "a dangerous game." Yet he predicted that it also would be effective in extracting trade concessions from countries like China.

"Six months from now, let's see where we're at," said Moore, who served as a senior economic adviser to Trump's presidential campaign. "I think in the end, Trump is going to prevail."