Two recent reports conclude that tariffs, quotas, or other trade restrictions that could be imposed in an ongoing section 232 national security investigation of automobiles and auto parts would have net negative impacts on the U.S. economy.
The Department of Commerce self-initiated in May an investigation under section 232 of the Trade Expansion Act of 1962 to determine whether imports of automobiles (including SUVs, vans, and light trucks) and auto parts are harming U.S. national security. A DOC press release explained that auto manufacturing has long been a significant source of U.S. technological innovation and that this investigation will therefore consider whether the decline of domestic automobile and auto parts production threatens to weaken the internal economy of the U.S., including by potentially reducing research, development, and jobs for skilled workers in connected vehicle systems, autonomous vehicles, fuel cells, electric motors and storage, advanced manufacturing processes, and other cutting-edge technologies.
Comments are due by June 22 and rebuttal comments are due by July 6. In addition, a public hearing will be held July 19 and 20 in Washington, D.C. The DOC has up to 270 days (i.e., until Feb. 17, 2019) to conclude its investigation.
If Commerce finds that excessive automobile and auto parts imports are a threat to U.S. national security, and the president concurs, the president has the authority to adjust imports, including through the use of tariffs and quotas. President Trump is reportedly considering tariffs of as much as 25 percent.
A policy brief from The Trade Partnership concludes that “if supporting jobs and strengthening the economy are the motivations for invoking national security reasons for imposing protection,” an additional 25 percent tariff on imported autos and auto parts “would have the opposite impact from that intended.” The brief explains that over the short term (one to three years, when producers have limited ability to replace imports or alter their existing supply chains) the tariff hike would result in a net loss of 157,291 U.S. jobs. There would be an increase of 92,000 jobs in the motor vehicle and auto parts sectors, the brief states, but only 17,676 in the higher-skilled jobs the DOC “cited in launching the review.” There would also be a decrease of 250,000 jobs in the rest of the economy, mostly in services. Further, U.S. economic output is anticipated to decline by 0.1 percent.
A separate study from the Peterson Institute for International Economics examining the same timeframe concludes that a 25 percent tariff would yield a 1.5 percent decline in production and a 1.9 percent drop in employment in the auto and auto parts industries, along with the loss of 195,000 jobs total. If U.S. trading partners imposed retaliatory tariffs, the study adds, these numbers would rise to 4.0 percent, 5.0 percent, and 624,000 jobs.
For more information on this section 232 investigation and how it may affect your business, please contact Kristen Smith at (202) 730-4965 or David Craven at (312) 279-2844.