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Trump’s auto tariffs would be a massive escalation of trade war

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If President Trump goes through with the tariffs he is pushing on imported cars, trucks and auto parts, it would mark a massive escalation of a trade war whose economic consequences are already hitting home.

Trump’s advisers believe he wants to impose a 25 percent tariff on foreign autos, hoping to raise the cost on foreign competition and persuade U.S. consumers to buy American-made cars. But critics — which include many of his fellow Republicans and even some of his own advisers — caution it could raise costs for consumers and be a disaster for jobs.

Those critics also (unsuccessfully) urged Trump to not put tariffs on steel and aluminum imports, but this time the stakes are far higher.

So far, the president has tariffs on foreign washing machines, solar panels, steel, aluminum and some Chinese-made goods. In total, the tariffs cover about $85 billion worth of products. It sounds like a big number, but it is less than 4 percent of the United States’ total imports last year ($2.4 trillion), according to The Washington Post Trump Tariff Tracker.

If Trump goes forward with tariffs on all autos and auto parts, it could more than quadruple the value of products covered by the president’s new tariffs — greatly exacerbating, critics say, the economic pain of the trade war.

The U.S. imported $360 billion worth of foreign cars, trucks and parts in 2017 and exported $161 billion worth of automobiles and car parts, resulting in a trade deficit in autos of about $200 billion.

That is why so many senators, business leaders and think tanks across the political spectrum are warning Trump not to impose auto tariffs. The goal of Trump’s trade moves is supposed to be saving jobs and bringing business back to the United States, but these leaders predict the opposite will happen: American jobs will be lost, and businesses will relocate abroad, moves that will hinder U.S. manufacturing growth for years, if not decades.

The Peterson Institute for International Economics forecasts 195,000 job losses from the auto tariffs — and that is if other countries do not retaliate. The European Union is already drawing up a list of ways to strike back if Trump goes forward with the auto tariffs. If other countries hit back, the Peterson Institute predicts more than 600,000 job losses, which would more than wipe out the manufacturing job gains since Trump took office.

Consumers across the nation would feel it. The Center for Automotive Research says the cost of a car would shoot up $455 to $6,875 (depending on how high the tariff is and the type of car). The Tax Foundation, which normally leans to the right, predicts that auto tariffs and additional tariffs on China would erase for U.S. workers all benefits of the tax cuts. Growth and wages are already falling because of the tariffs in place, Tax Foundation analysts warn, and it would get worse if Trump piles on more tariffs.

Trump and many union members counter that the United States has already lost many good-paying jobs because of foreign countries grabbing more and more of the auto manufacturing space. In 2000, the United States had 1.3 million workers in Ford, GM and other factories that make cars and car parts, according to the Labor Department. Today there are 966,000, a decline of about a quarter.

Many are quick to say the technology has replaced workers, but the United Auto Workers union points out the United States is also making fewer cars today than it did in 2000.

There are three things that complicate Trump’s quest to put tariffs on autos and parts.

1. Supply chains for autos and trucks are global. Every car in the United States is essentially a “foreign car,” because some of the components in it were made overseas, said Peter Welch, president of the National Automotive Dealers Association, last week at a public hearing on potential auto tariffs.

All the major car manufacturers and parts makers have warned Trump and his team that adding tariffs would make it difficult, it not impossible, to get some of the parts needed to manufacture a car in the United States. That might drive them to move factories overseas because it would be easier to do than pay the import tax or wait for a U.S. firm to start making what is needed.

2. The U.S. auto sector has thrived since the Great Recession. It has added back jobs (more than 300,000 since 2010) and enjoyed years of record car and truck sales, making this an odd time to argue that the sector needs extra protection. The Trump administration is trying to use the 232 process to make the case there is a “national security” risk here, something many trade law experts say is not convincing for cars and trucks.

3. Many of America’s closest allies — Canada, Germany and South Korea — are key players in the U.S. auto trade. These countries already feel slapped in the face over the steel and aluminum tariffs. Putting tariffs on autos and parts from these countries risks “damage further the reputation of the United States,” the European Union warned in a letter.

Here are the top five countries from which the United States imported cars in 2017: 1. Canada ($43 billion), 2. Japan ($40 billion), 3. Mexico ($30 billion), 4. Germany ($21 billion), 5. South Korea ($16 billion).

Here are the top five countries from which the United States imported car parts from in 2017: 1. Mexico ($56 billion), 2. China ($17 billion), 3. Canada ($16 billion), 4. Japan ($15 billion), 5. Germany ($10 billion).

While Canada appears high on the lists, the United States exports almost the same amount to Canada as it imports from the neighbor to the north. So many, even among union members who would like to see some sort of action from Trump, do not want to see Canada hit with tariffs because they do not think Canada is the problem.

Trump tweeted Wednesday that Republican lawmakers and his supporters should “be cool” and wait for him to strike a deal. He often points out U.S. tariffs on cars are 2.5 percent while the European Union has a 10 tariff on car imports. But he leaves out that the United States has a 25 percent tariff on foreign trucks (while the E.U. has a 10 percent tariff).

Trump sees auto tariffs as a way to raise the pressure on Europe, Canada and beyond. But many warn he is bulldozing down the very foundations of the U.S. automotive sector that have helped the industry thrive — and add hundreds of thousands of jobs — in recent years.


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