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Trump’s next tariffs could cost U.S. in race for self-driving cars

The auto industry and suppliers oppose the president’s move to tax foreign auto imports.

The Coast P-1 Shuttle, made by Coast Autonomous, a bidirectional self-driving vehicle designed to operate in pedestrian areas or in low-speed traffic, is seen during a media demonstration in Times Square in New York. (Mike Segar/Reuters)

Mark White, president of Shape, a Michigan-based auto industry supplier, does not want to move his research into “smart” bumpers for self-driving cars out of the United States. But if President Trump proceeds with his latest tariff threat, he says he may have little choice.

The president has asked the Commerce Department to investigate whether imports of autos and auto parts endanger U.S. national security, a claim most independent analysts doubt. Once that study is complete — a public hearing is scheduled for Thursday in Washington — Trump is expected to move forward with a 20 percent levy on imported cars and parts.

That action would add several thousand dollars to the price of each car sold in the United States, cutting sales and leaving automakers and their major suppliers with less money for research and development, industry groups say. One casualty of such protectionism would be breakthrough technologies for self-driving vehicles.

Shape, which makes lightweight bumpers and other components for customers such as General Motors and BMW, has the bulk of its advanced research and development in Grand Haven, Mich., on the shores of Lake Michigan. Trump’s tariffs could change that.

“We’d have to dial it back,” said White. “We’d have to scale back our research — have to look at moving that research into other parts of the world that are lower cost.”

The proposed auto tariffs are emerging as a case study of the way protectionism saps innovation and growth, a concern that Federal Reserve Chairman Jerome H. Powell noted this week in congressional testimony. “Countries that remain open to trade have higher productivity; they have higher incomes,” Powell told the House Financial Services Committee on Wednesday. “A more protectionist economy is less competitive, less productive. We know that.”

The United States has long been a magnet for innovation, thanks to strong protections for intellectual property, the rule of law and an entrepreneurial culture. Amid Trump’s “America First” policy, which he says will return lost manufacturing jobs to the United States, the nation may be losing its attractiveness.

In the first quarter, the U.S. received $51.3 billion in foreign direct investment. That was the lowest figure in four years and represented a sharp decline from nearly $90 billion during the same period one year earlier and $147 billion in the first quarter of 2016, according to the Commerce Department.

“The numbers have fallen off a cliff,” said Adam Posen, president of the Peterson Institute of International Economics. “Over time, this erodes R&D. This erodes American competitiveness at a very fundamental level.”

Research into the technologies needed to make self-driving and electric vehicles a consumer staple is expected to be so costly that most companies will base their main development work in a single location, industry executives said. General Motors has warned that the tariffs “could delay breakthrough technologies and threaten U.S. leadership in the next generation of automotive technology.”

The industry’s long lead times for new products mean the stakes are high. If the tariffs raise costs or disrupt supply chains in a way that encourages companies to base their advanced mobility research elsewhere, “we will have little opportunity to recoup these losses for a decade,” Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association, plans to tell Thursday’s hearing.

Republican lawmakers have generally supported Trump’s tariffs, but the auto proposal is stirring talk of curbing his power to levy them.

“These tariffs are dangerous. These tariffs are going to cost us jobs. These tariffs are going to lower our family incomes. These tariffs are going to undo much of the good that the president and this Congress have done during the last year and a half to create this booming economy,” said Sen. Lamar Alexander (R-Tenn.), who plans to introduce legislation along with Sen. Doug Jones (D-Ala.) to block the president’s move.

Sen. Orrin G. Hatch (R-Utah), chairman of the Senate Finance Committee, also spoke out against the tariffs this week. On Wednesday, Rep. Jackie Walorski (R-Ind.) released a letter to Ross signed by 149 members of Congress, saying the tariffs could “undermine our economic security.”

The auto tariffs are emerging as one of the strangest chapters in the president’s unorthodox trade offensive. Trump — who has owned foreign models such as Mercedes-Benz — frequently complains about the presence on American roads of foreign cars, especially German sedans, and the difficulty the U.S. faces in exporting passenger cars to Europe, Japan and South Korea.

The auto industry is “critical to our strength as a nation,” Trump said in May when he directed the Commerce Department investigation.

But neither the major automakers nor their suppliers asked for the government’s protection. The United Auto Workers has offered only qualified support for “targeted measures” to boost domestic production.

The vast majority of the more than 2,300 public comments submitted to Commerce opposed the proposal. And economists from the Peterson Institute say the tariffs will cost more than 600,000 jobs and erode U.S. competitiveness.

At Shape, a 44-year-old manufacturer that specializes in stripping excess weight from vehicle components, development continues on parts for future vehicles. The company, with about $800 million in annual revenue, has about 50 engineers in its Michigan research center trying to perfect a new battery tray for electric cars as well as bumpers that can anticipate accidents for self-driving vehicles.

White said that research applicable to autonomous or electric models represents a significant portion of the company’s development budget. “That’s really where the future of the industry is heading,” he said.

The technical demands are challenging. The battery tray must be light enough to allow the vehicle to travel far on a single charge, strong enough to protect the power source from road vibrations and sophisticated enough to manage any resulting heat buildup. “Smart” bumpers must integrate data from sensors embedded in the vehicle’s front or rear ends.

Shape already has absorbed a “multimillion-dollar hit” from the tariffs on steel and aluminum that the president imposed earlier this year, White said. Additional tariffs that disrupt the industry’s globalized supply chain could persuade him to shift high-value research to India or China.

“We still have to do the R&D,” he said. “But maybe that R&D goes elsewhere to other countries, not the U.S.”

Such moves could hobble the United States in a battle with China, Europe and Japan to dominate the emerging automotive revolution, industry groups have told the Commerce Department. China already enjoys a lead in electric manufacturing capacity, with 39 plants producing electric vehicles, according to Bloomberg New Energy Finance.

At issue in the research race is progress on a range of sophisticated technologies, including sensors, software, batteries, cameras and anti-hacking defenses.

“We’re clearly the leader today,” said Matt Blunt, head of the American Automotive Policy Council. “But if North America and the U.S. become a less competitive place to make and assemble vehicles, there won’t be the sort of revenue and income that allows companies to make investments and keep the U.S. at the cutting edge.”

Trump’s proposed tariffs on foreign cars and car parts are a flash point in his expanding campaign to overhaul U.S. trade policy. So far, the president has levied tariffs on imported solar panels, washing machines, steel, aluminum and goods from China totaling about $85 billion. U.S. trading partners have retaliated with nearly equivalent measures, affecting a total of $165 billion in traded goods.

If the new levies apply to all $350 billion worth of cars, trucks and auto parts that the United States imported last year — and other nations respond in kind — Trump’s trade war would subject more than one-fifth of total U.S. trade to higher tariffs.

“Protected markets end up being R&D innovation black holes,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents multinationals including Ford and FCA Group. “It doesn’t happen immediately. But over time, you lose your innovation.”