Trump due auto-tar­iff guid­ance

Prospect of for­eign car tax wor­ries law­mak­ers, busi­ness­men

Arkansas Democrat-Gazette - - BUSINESS & FARM - TOM KRISHER AND PAUL WISEMAN

Sun­day, the Com­merce De­part­ment is ex­pected to is­sue an opin­ion on whether for­eign-made cars en­dan­ger U.S. na­tional se­cu­rity enough to jus­tify tar­iffs of 20 to 25 per­cent on im­ported au­tos and auto parts. Pres­i­dent Don­ald Trump would then have 90 days to de­cide whether to im­pose them.

The de­part­ment could de­cide to post­pone its con­clu­sion. Or it could just hand its rec­om­men­da­tions to Trump with­out mak­ing them pub­lic.

But if it does sug­gest that Trump im­pose the tar­iffs, the de­part­ment would be ad­vo­cat­ing a ma­jor es­ca­la­tion in Trump’s com­bat­ive trade poli­cies. So far, he has stuck tar­iffs on im­ported steel, alu­minum, dish­wash­ers, so­lar pan­els and hun­dreds of Chi­nese goods. The tar­iffs have be­come a fi­nan­cial bur­den for U.S. com­pa­nies that im­port goods and parts and have led some to pass on their higher costs to cus­tomers. Many econ­o­mists worry about the even­tual im­pact on the U.S. econ­omy.

U.S. auto tar­iffs would al­most surely lead Japan and the Euro­pean Union to re­tal­i­ate. They could also spark a re­bel­lion in the U.S. Congress — in­clud­ing from Trump’s fel­low Repub­li­cans — over con­cern that he is rais­ing tar­iffs by in­vok­ing his au­thor­ity to la­bel cer­tain im­ports a threat to Amer­ica’s na­tional se­cu­rity.

“I don’t be­lieve that mini­vans from Canada or other al­lies are a threat to our na­tional se­cu­rity,” said Repub­li­can Sen. Rob Port­man of Ohio. “I hope the ad­min­is­tra­tion takes a step back and re­con­sid­ers any auto tar­iffs.”

The tar­iffs could have far­reach­ing con­se­quences — on the com­pa­nies that make cars, of­ten with im­ported parts; on the deal­er­ships that sell them; and on the con­sumers who buy them. U.S. im­ports of pas­sen­ger ve­hi­cles and auto parts amounted to $340 bil­lion in 2017.

Some­times, on a bad night, Brad Strong wakes at 2 a.m. and can’t get back to sleep. The in­som­nia isn’t about his

fam­ily or money or health. It’s about tar­iffs.

The Strong fam­ily’s three car deal­er­ships in Salt Lake City could suf­fer a sig­nif­i­cant blow if the tar­iffs are im­posed.

The Strongs’ deal­er­ships sell ve­hi­cles made by Ger­man au­tomak­ers — Volk­swa­gen, Audi and Porsche. No Porsches or Audis are built in the U.S. Only a cou­ple of Volk­swa­gen mod­els are. The likely re­sult is higher prices and lower sales for Strong and other deal­ers who sell im­ported ve­hi­cles.

“I worry about the peo­ple that work for me and their fam­i­lies,” said Strong, who fears that his deal­er­ships would have to lay off some of its 225 em­ploy­ees.

If 25 per­cent tar­iffs were im­posed on im­ported parts and ve­hi­cles, in­clud­ing from Canada and Mex­ico, the price of im­ported ve­hi­cles would

jump more than 17 per­cent, or an av­er­age of around $5,000 each, ac­cord­ing to IHS Markit. Even the prices of ve­hi­cles made in the U.S. would rise by about 5 per­cent, or $1,800, be­cause all use some im­ported parts.

Lux­ury brands would ab­sorb the sharpest in­crease: $5,800 on av­er­age, IHS con­cluded. Mass-mar­ket ve­hi­cle prices would rise an av­er­age of $3,300.

If the tar­iffs are fully as­sessed, IHS se­nior econ­o­mist Peter Na­gle pre­dicts that price in­creases would cause U.S. auto sales to fall by an av­er­age of 1.8 mil­lion ve­hi­cles a year through 2026.

“We’re talk­ing about an en­vi­ron­ment where sales are slow­ing al­ready,” Na­gle said.

In ad­di­tion to Audi and Porsche, the most af­fected brands would be Mazda, As­ton Martin and McLaren, which build all of their ve­hi­cles out­side the U.S. The tar­iffs also would hit Audi, Porsche, Volvo, BMW, Mercedes-Benz, Hyundai and Volk­swa­gen hard. Nearly

100 per­cent of Volvos sold in the U.S. were pro­duced else­where last year. The fig­ure is 67 per­cent for BMW, 63 per­cent for Mercedes, 84 per­cent for the VW group and 62 per­cent for Hyundai.

“I think it would be harm­ful to the whole econ­omy,” said Howard Hakes, pres­i­dent of Hitch­cock Au­to­mo­tive, which has three Toy­ota show­rooms in metro Los An­ge­les. “You put a 25 per­cent tar­iff on that, you’re slow­ing down the train that’s rolling al­ready.”

Mario Mur­gado, who owns Honda, Volk­swa­gen, Audi and other deal­er­ships in the Mi­ami and Chicago ar­eas, has a dif­fer­ent view. He says he’s will­ing to sac­ri­fice sales if nec­es­sary to make global trade fairer. Other coun­tries, Mur­gado ar­gues, as­sess higher tar­iffs than the U.S. does, while coun­tries like Japan im­pose other bar­ri­ers to im­port­ing U.S. ve­hi­cles.

“I’m just try­ing to do the right thing that’s in the best in­ter­est of our coun­try,” he said.

Of the 17.2 mil­lion ve­hi­cles sold in the U.S. in 2017, 52 per­cent were pro­duced do­mes­ti­cally, ac­cord­ing to the Cen­ter for Au­to­mo­tive Re­search. Four­teen per­cent came from Mex­ico and 11 per­cent from Canada. Ten per­cent were made in Japan, 5 per­cent in South Korea, 3 per­cent in Ger­many and 5 per­cent else­where.

There are many ways auto tar­iffs could be im­posed. The worst-case sce­nario for the in­dus­try would be tar­iffs on both ve­hi­cles and parts. The ad­min­is­tra­tion also could slap levies on ve­hi­cles but not parts. Or it could sus­pend tar­iffs and use them for bar­gain­ing.

But the tar­iffs would likely in­vite re­tal­i­a­tion aimed at U.S. farm­ers or other sec­tors of the econ­omy, said Kristin Dz­iczek, a vice pres­i­dent at the Cen­ter for Au­to­mo­tive Re­search.

“If we [tax] Audis, Ger­many could say, ‘We don’t want your peanut but­ter,’” she said.

AP/JAE C. HONG

Toy­ota sedans are dis­played at a deal­er­ship in In­dus­try, Calif. If 25 per­cent tar­iffs are fully as­sessed against im­ported parts and ve­hi­cles, the price of im­ported ve­hi­cles would rise more than 17 per­cent, or around $5,000 each, ac­cord­ing to fore­casts from IHS Markit.

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