Un­cer­tainty over tar­iffs threat­ens auto jobs, sales

In­dus­try anx­ious over what Trump might do

USA TODAY US Edition - - USA TODAY MONEY - Mark Phe­lan

The auto in­dus­try just got a ma­jor dose of un­cer­tainty that could re­duce in­vest­ment in new tech­nolo­gies and ve­hi­cles.

The Trump ad­min­is­tra­tion hasn’t re­vealed the Com­merce Depart­ment’s rec­om­men­da­tions on whether to ap­ply new tar­iffs on im­ported ve­hi­cles and com­po­nents.

Un­cer­tainty is kryp­tonite to the auto in­dus­try, which rou­tinely in­vests tens of bil­lions of dol­lars in projects that can take a decade or more to pay off.

At is­sue is the po­ten­tial for broad U.S. im­port tar­iffs and trade re­stric­tions that could cost 366,000 jobs – nearly 100 times what’s at stake in GM’s con­tro­ver­sial plant clos­ings. The tar­iffs and trade re­stric­tions could in­crease aver­age ve­hi­cle cost by $2,750 and re­duce U.S. sales by 1.3 mil­lion ve­hi­cles a year, ac­cord­ing to a new study by the Cen­ter for Au­to­mo­tive Re­search.

The Com­merce Depart­ment’s rec­om­men­da­tions are in what is called an Ar­ti­cle 232 re­port, af­ter a rule that al­lows the pres­i­dent to ap­ply tar­iffs when na­tional se­cu­rity is at stake. Pres­i­dent Don­ald Trump has 90 days af­ter the re­port is is­sued to de­cide on the

tar­iffs, though he is not bound by what­ever Com­merce rec­om­mended.

The re­sult could be tar­iffs of up to 30 per­cent on im­ported ve­hi­cles and parts, ex­clud­ing those from Canada, Mex­ico and South Korea, which have sep­a­rate trade deals with the United States.

Other costs to au­tomak­ers in the trade war in­clude tar­iffs on steel and alu­minum and Chi­nese im­ports, which are al­ready in place. Ford said those tar­iffs cost it $750 mil­lion last year.

‘Threat to con­sumers’

“Broad Sec­tion 232 tar­iffs on au­tos and auto parts still present the big­gest trade pol­icy threat to con­sumers and the U.S. econ­omy,” Na­tional Auto Deal­ers As­so­ci­a­tion Pres­i­dent and CEO Peter Welch said. “NADA un­der­stands and ap­pre­ci­ates the ad­min­is­tra­tion’s at­tempts to level the trade play­ing field and elim­i­nate un­fair trade prac­tices, but ex­pan­sive Sec­tion 232 auto tar­iffs are the wrong tool for the job. They will lead to dra­matic price in­creases, de­pressed ve­hi­cle sales and job losses.”

NADA spon­sored CAR’s study, “U.S. Con­sumer & Eco­nomic Im­pacts of U.S. Au­to­mo­tive Trade Poli­cies.”

Every car, truck and SUV sold in the USA would be af­fected by the tar­iffs. Even ve­hi­cles as­sem­bled in the USA use many im­ported parts, and U.S.-made parts are ex­ported to plants in Canada and Mex­ico.

“There is no 100 per­cent U.S.-made car,” said CAR Vice Pres­i­dent for In­dus­try, La­bor and Eco­nom­ics Kristin Dz­iczek. “The aver­age U.S.-built ve­hi­cle has around 50 per­cent to 60 per­cent U.S. con­tent,” ex­clud­ing la­bor.

The worst-case job losses pre­dicted by CAR are 96 times the 3,800 jobs at four U.S. plants Gen­eral Mo­tors is ex­pected to close.

The ef­fect of wide­spread Ar­ti­cle 232 tar­iffs on ve­hi­cles and parts would dwarf tar­iffs on im­ported alu­minum and steel, which raised ve­hi­cle prices and cut au­tomak­ers’ prof­its by bil­lions of dol­lars in 2018.

The Com­merce Depart­ment spent months on the re­port, which Trump re­quested to jus­tify tar­iffs on im­ported ve­hi­cles and parts on na­tional se­cu­rity grounds.

There was a brief flurry of con­cern when truck­ing com­pa­nies can­celed a sig­nif­i­cant num­ber of or­ders for trac­tor-trail­ers, which are called Class 8 heavy-duty ve­hi­cles based on their tow­ing ca­pac­ity. That turned out to be a blip, not a trend, said Jim Mele, Wards In­tel­li­gence con­tribut­ing ed­i­tor for com­mer­cial ve­hi­cles. He ex­pects steady sales of Class 8 and smaller medium-duty ve­hi­cles, such as UPS vans, boom trucks and con­struc­tion ve­hi­cles, through 2019.

“The freight busi­ness is grow­ing twice as fast as the GDP,” said IHS Markit com­mer­cial ve­hi­cles di­rec­tor An­drej Divis. “That’s very strong. The gen­eral view is 2019 will be up slightly from 2018.”

Medium- and heavy-duty truck sales can in­di­cate fu­ture eco­nomic strength. They’ve been in­creas­ing steadily since the end of the Great Re­ces­sion, one of the long­est eco­nomic ex­pan­sions in U.S. his­tory.

‘A very strange mar­ket’

That’s one of the rea­sons economists are ner­vous. The coun­try is over­due for a cooldown, though not a ma­jor re­ces­sion.

“This is a very strange mar­ket,” said Char­lie Ch­es­brough, chief econ­o­mist for Cox Au­to­mo­tive. “The length of the re­cov­ery and re­cent in­ter­est rate in­creases sug­gest we should see a down­turn, but bor­row­ing and wages are not show­ing it.” The rise in peo­ple fall­ing be­hind on car loans ap­pears to be an­other blip, he said.

“The pres­i­dent’s poli­cies add a level of un­cer­tainty,” Ch­es­brough said. “You can’t plan be­cause they’re all over the map. New tar­iffs on ve­hi­cles, parts or ma­te­ri­als would send shock waves through the econ­omy.”

JAE C. HONG/AP

Tar­iffs could push up the price of im­ported ve­hi­cles, ac­cord­ing to IHS Markit fore­casts.

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