After imposing steep tariffs on steel and aluminum imports under section 232 of the Trade Expansion Act of 1962 in the month of March 2018, the Trump government has initiated same section 232 investigation into U.S. imports of automobiles and automotive parts. The investigation will determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the U.S. poses a threat to the country’s national security as defined in Section 232.
The U.S. Commerce Secretary Wibur Ross said in a statement that “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.”
The favorable situation for U.S. domestic auto and steel sector
According to the market reports, over past 20 years, imports of passenger vehicles in U.S. have grown from 32% to 48%. However, from 1990 to 2017, employment in U.S.’s motor vehicle production declined by 22%, even though Americans are continuing to purchase automobiles at record levels. Now, American owned vehicle manufacturers in the U.S. account for only 20% of global research and development in the automobile sector, and American auto part manufacturers account for only 7% in that industry.
If U.S. imposes import restrictions on auto sector, it could have favourable effect on the country’s consumption of metals, including steel and aluminum, which are used in vehicles and auto parts. This is because with such trade barriers in place, U.S. automobile and auto parts import will fall generating demand from domestic automobile sector and indirectly increasing country’s in-house steel demand. The same analysis can be applied for aluminum, a growing alternative material in automotive bodies.
Which countries will be majorly affected by U.S. import tariffs on auto sector?
Almost a quarter of autos sold in the U.S. are imported, according to the government figures. U.S. levies a 2.5% duty on imported passenger cars and a 25% tariff on pickup trucks from countries that are not parties to free trade agreements.
Mexico exports the most passenger cars to the country, followed by Canada, Japan, Germany and South Korea. U.S. manufactured about 12 million cars and trucks in 2017, while the country imported 8.3 million vehicles worth USD 192 billion. This included 2.4 million from Mexico, 1.8 million from Canada, 1.7 million from Japan, 930,000 from South Korea and 500,000 from Germany, according to U.S. government statistics.
Japanese steel firms are worried that potential U.S. auto import curbs could have a major impact on demand for their products as passenger cars make up about 30% of Japan’s total exports to the U.S. The country has already threatened Washington with retaliation at the WTO for the steel tariffs.
While South Korean government said it has formed a task force with automakers and car associations to review the potential impact on the local auto industry of the US move and to consider countermeasures.
Subsequently, with the initiation of import tariffs on auto sector, which is the second largest steel-consuming sector of U.S. following construction, the Trump government has raised the specter of the trade war.
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