Trump initiates trade inquiry that could lead to tariffs on foreign cars

US President Donald Trump speaks to the media as he departs the Oval Office of the White House for New York City in Washington, DC, on May 23, 2018. PHOTO: EPA-EFE

NEW YORK (NYTIMES) - US President Donald Trump has initiated a sweeping trade investigation into whether autos imported into the United States pose a threat to national security, a move that could ultimately result in tariffs on foreign-made cars and further strain relations with global allies.

In a statement released on Wednesday evening, the Commerce Department said it had begun an investigation "following a conversation" with Trump.

The announcement followed a statement from Trump, in which he said he had instructed the commerce secretary, Wilbur Ross, to consider initiating an investigation into imports of cars, trucks and auto parts "to determine their effects on America's national security." "Core industries such as automobiles and automotive parts are critical to our strength as a nation," Trump said.

In a separate announcement, the Commerce Department said that imports of passenger vehicles had grown from under a third of cars sold in the United States 20 years ago to nearly half today, while employment in the sector had declined.

Automobile manufacturing has long been a source of technological innovation in the United States, and the investigation would consider whether the decline of the auto industry threatens to weaken the American economy by reducing research and development in cutting-edge technologies, the statement said.

"There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry," Ross said.

The investigation, which will take months to conduct, will be carried out under the same legal statute that the administration used to impose tariffs on steel and aluminium imports. The statute gives the president broad authority to restrict imports that threaten national security.

In remarks on Wednesday afternoon, Trump appeared to link the new trade investigation and continuing talks over the North American Free Trade Agreement.

Those negotiations have largely stalled over auto rules, including how much of a car's content must be manufactured in North America - and in the United States - to qualify for NAFTA's zero tariffs.

The Trump administration has tried to use the steel and aluminium tariffs as a bargaining chip to persuade other countries to voluntarily restrain their metal shipments to the United States or make other trade concessions.

The administration may be looking to use the auto tariffs similarly, as leverage to force concessions from trading partners like Canada and Mexico.

"I think your autoworkers and your auto companies in this country are going to be very happy with what's going to happen," the president said on Wednesday afternoon as he prepared to board Marine One.

"NAFTA is very difficult. Mexico has been very difficult to deal with. Canada has been very difficult to deal with. They have been taking advantage of the United States for a long time. I am not happy with their requests. But I will tell you, in the end, we win." "Our autoworkers are going to be extremely happy," he added.

In a Twitter post on Wednesday morning, the president also hinted at the pending announcement.

"There will be big news coming soon for our great American Autoworkers," Trump said. "After many decades of losing your jobs to other countries, you have waited long enough!"

But the proposal appeared to provoke a swift backlash from the car industry. Some auto industry representatives said they worried the plan could raise prices for cars and trucks in the United States, and end up leading to a less competitive American industry and fewer choices for American consumers.

"If these reports are true, it's a bad day for American consumers," said John Bozzella, the chief executive of Global Automakers, a trade group.

"To our knowledge, no one is asking for this protection." In an April 2017 memo, the White House described several sectors as "critical elements of our manufacturing and defence industrial bases, which we must defend against unfair trade practices and other abuses."

That included vehicles, along with products like steel, aluminium, aircraft and semiconductors.

The Trump administration has already deemed imports of steel and aluminium a threat to national security, saying foreign metals are degrading the United States manufacturing base.

It is also considering tariffs on as much as US150 billion of Chinese imports as retaliation for China's forced coercion of American intellectual property, which the administration has also declared a threat to national security.

Trade experts said a finding by the administration that imported autos pose a national security threat would most likely prompt legal challenges at the World Trade Organisation. The European Union, Japan and other allies are already challenging the Trump administration's claim that imports of steel and aluminium put American national security at risk.

Extending that argument to automobiles would probably be met with even greater scepticism.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, pointed out that 98 per cent of American imports of passenger cars last year came from five American allies: Mexico, Canada, the European Union, Japan and South Korea.

"This is not about national security," Bown said.

"After the steel and aluminium high, President Trump has now become addicted to tariffs. He is now clearly abusing this national security law simply to get his tariff fix. And this law is the easiest access he has found."

Trump has made the auto industry a major focus of his economic policy, seeing carmakers as an example of an American sector weakened by global offshoring.

While carmakers have welcomed some of the measures proposed by the Trump administration, they have chafed at the White House's approach to NAFTA and its steel and aluminium tariffs, which they say will raise prices and ultimately be passed on to consumers. Many auto suppliers also depend on China, with which the White House is locked in a trade dispute, for parts they cannot source in the United States. China recently said it would lower tariffs on imported American autos as part of a peace offering, but the potential trade war with China has put several companies on edge.

Many inside and outside the auto industry say the administration's approach could backfire by raising prices for American-made products, potentially slowing sales and encouraging more companies to move abroad.

Phil Levy, a senior fellow at the Chicago Council on Global Affairs, criticised the idea as "an unusually ill-conceived trade move."

"It seems to imagine a world in which each country produces its own automobiles and then they swap them back and forth. In fact, we live in a world in which viable auto companies are heavily involved in global supply chains," he said.

"It would harm U.S. consumers at the margin, while undermining the global trading system and inviting certain retaliation."

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