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US launches investigation into auto imports despite global outcry

Despite a widespread outcry from global trading partners and concerns from domestic sellers, the U.S. Commerce Department said May 24 that it would forge ahead with an investigation into American imports of foreign vehicles that could lead to tariffs being slapped on well-known brands.

Commerce Secretary Wilbur Ross said in a statement that the Section 232 investigation would determine if automobiles, "including SUVs, vans and light trucks" as well as automotive parts, imported into the U.S. from all countries threatened national security. Ross said the investigation will consider whether the decline in domestic vehicle and parts production weakens the economy of the U.S., including by reducing research and jobs for new technologies such as autonomous vehicles, fuel cells, electric motors and storage, as well as connected vehicle systems.

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

Commerce used the justification that vehicle imports have grown to account for 48% of cars sold in the U.S. from the previous 32% figure 20 years ago. The department also said American car production employment fell by 22% between 1990 and 2017, and American vehicle manufacturers account for 20% of global research and development in the sector.

A public hearing and public comment period is expected to be held in the near future, the agency said, though a date was not specified. Following the investigation, a recommendation on tariffs could be made by the department.

World, auto dealer reaction

The announcement was immediately met with resistance from several trade groups representing U.S. sellers of foreign vehicles.

"If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices," John Bozzella, CEO of Global Automakers, a Washington, D.C.-based trade group whose members include Honda, Hyundai and Kia, said in a May 24 statement. "This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners."

The American International Automobile Dealers Association warned that the tariffs would only make the vehicles more expensive for American consumers.

"American families who can least afford a 25% price increase on vehicles will bear the burden of this tariff," Cody Lusk, the group's president and CEO, said in a statement May 23. "To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees."

Global reaction to reports that the Trump administration was weighing up to 25% tariffs on vehicle imports was swift as several countries registered opposition to such tariffs.

Japanese Trade Minister Hiroshige Seko warned May 24 that the investigation would "plunge the global market into turmoil," Nikkei Asian Review reported.

According to the report, a China Ministry of Commerce spokesman also said: "China opposes the abuse of national security clauses, which will seriously damage multilateral trade systems and disrupt normal international trade order."

European Commission Vice President Jyrki Katainen told reporters that such tariffs would be against World Trade Organization rules, Reuters reported.

"It's very difficult to imagine it to create any sort of threat to national security," Katainen said, according to the report. "It's very difficult to understand."

The most likely targets of the case would be Japan — which accounted for 28% of vehicle imports in the past 12 months, according to Panjiva Research, a division of S&P Global Market Intelligence — and Europe, which accounted for 13%.

In a May 24 report, Panjiva said the recently updated U.S.-Korea Free Trade Agreement and the existing North American Free Trade Agreement should protect vehicles imported from South Korea, Mexico and Canada. But despite the intentions to make U.S. automakers more competitive, the opposite effect could occur, according to the Panjiva.

"Ironically, the launch of a case could lead to a surge of imports as suppliers seek to pre-empt duties," Panjiva said.

According to the Commerce Department, Mexico, at $46.92 billion worth of vehicles, was the top exporter to the U.S. of new passenger vehicles in 2017, followed by Canada at $42.51 billion. Japan at $39.78 billion, Germany at $20.18 billion and South Korea at $15.73 billion in exports round out the top five sources for American vehicle purchases. Total U.S. imports of vehicles reached $191.7 billion in 2017.

"I instructed Secretary Ross to consider initiating a Section 232 investigation into imports of automobiles, including trucks, and automotive parts to determine their effects on America's national security," Trump said in the statement on May 23, formally announcing his intent to investigate. "Core industries such as automobiles and automotive parts are critical to our strength as a nation."

The vehicle imports investigation is just the latest development in what has become an administration filled with threats of tariffs on imports of foreign goods in order to make domestic industries more competitive.

The administration also launched a Section 232 investigation in April 2017 into imports of steel and aluminum on the grounds of national security, which led to tariffs of 25% and 10%, respectively, on the metals implemented in late March. That investigation was based on the administration's findings that a reliance on imports of the metals and a lack of domestic production could pose an American military threat.

Ross said May 24 on CNBC that the automotive Section 232 investigation also impacts military stability.

"National security is broadly defined to include the economy ... to include a very big variety of things that one would not normally associate with directly with military security," Ross said. "Economic security is military security."

Shares in Toyota Motor Corp. and Daimler AG fell more than 3% and the dollar weakened almost 1% against the yen, with ING saying foreign exchange traders saw speculation on protectionism as negative for the U.S. currency.