National Security Tariffs: Cars Next?

Before President Trump assumed office, domestic authority for imposing tariffs on imports that threaten the national security had been used sparingly, and not for 15 years. His administration has already relied on Section 232 of the Trade Expansion Act of 1962 to impose tariffs on imports of steel (25%) and aluminum (10%), contending that the imports, even from the U.S.’s closest allies, threaten the nation’s security. The president now appears likely to impose tariffs on imports of autos and auto parts using the same national security justification, even though his complaints center on foreign tariffs and trade barriers. This post considers the use of the Section 232 authority amid concerns that it is being employed to force other countries to change their trade practices rather than protect America’s security.

In March, the president imposed the steel and aluminum tariffs on imports from all countries, except those given temporary exemptions. A permanent exemption was conditioned on acceptance of a quota or other restriction on the country’s imports. Argentina, Brazil and Korea agreed to restrictions. Only Australia escaped the tariffs.

After granting temporary exemptions to the European Union, Canada and Mexico, the president on June 1 extended the tariffs to them because the U.S. had been “unable to reach satisfactory arrangements”. Imposing the tariffs on its allies has undermined the U.S. claim that the tariffs are being imposed for national security reasons. The EU, Canada and other countries have retaliated by imposing tariffs on U.S. exports, contending that the American tariffs are safeguards, rather than national security measures.

Following his broad imposition of steel and aluminum tariffs, the president appears likely to resort to the national security authority to impose tariffs on autos, which have drawn his ire. Such tariffs would exacerbate concerns that the statute is being misused.

On May 23, the Secretary of Commerce, responding to the president’s request, initiated an investigation “to determine the effects on the national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automotive parts” under Section 232. Commerce invited public comments by July 6 and set a public hearing for July 19 and 20.

In initiating the investigation, the Commerce Secretary promised “a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security”. However, it appears that the investigation will be conducted very quickly, even though the statute allows the Department 270 days to prepare a report for the president. Commerce is reportedly planning to complete its investigation as soon as July or August. That would enable the president to impose tariffs before the U.S. midterm elections on November 6.

Commerce outlined in a Federal Register notice, the information that it is seeking, which includes the following:

  • The quantity and nature of imports of autos and auto parts;
  • Domestic production and productive capacity needed to meet projected national defense requirements;
  • The availability of human resources, products, raw materials, production equipment and facilities to produce autos and auto parts;
  • The growth requirements of the autos and auto parts industry to meet national defense requirements and/or requirements to assure such growth, particularly with respect to investment and R&D;
  • The impact of foreign competition on the economic welfare of the U.S. autos and automotive parts industry; and
  • The displacement of any domestic autos and auto parts causing substantial unemployment, decrease in government revenues, loss of investment or specialized skills and productive capacity.

The investigation will also consider the effect of foreign ownership of U.S. production, with its query of “whether and, if so, how the analysis of the above factors changes when U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms”. With an affirmative finding by the Commerce Department that imports of autos and auto parts threaten to impair the national security, the president would be able to carry out his threats to impose tariffs up to 25% on auto imports.

The steel and aluminum tariffs, and now the threatened auto tariffs, have drawn fire from U.S. trading partners, businesses and lawmakers as a misuse of the national security authority.  They contend that the tariffs do not support the nation’s security; instead they harm American manufacturers and consumers, damage the U.S. economy, disrupt relationships with U.S. allies and violate WTO rules.

Members of Congress are considering legislation that would curb use of the national security authority and allow the legislative branch to reclaim some of the extensive tariff authority that it has delegated to the president over the years.  It is questionable whether effective legislation could be adopted before the midterm elections.

If car imports can be considered a threat to the national security, what products will be next? How will the U.S. respond if its trading partners assert national security as the basis for imposing their own barriers to U.S. imports?

Jean Heilman Grier

June 27, 2018

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