How Trump almost justified car tariffs
The Trump administration never published its much-discussed 116-page argument for “national security” tariffs on Volkswagen and other foreign cars, and now we know why. Thanks to Minister of Commerce Gina Raimondo for finally getting it out this month and letting the public see the shoddy craftsmanship.
President Trump ultimately failed to impose proposed tariffs of up to 35% on foreign cars, but the report warns of how much trading power Congress has surrendered. A law known as Section 232 allows the President to “adjust” imports if they threaten to compromise “national security.” The Auto Report defines this broadly, encompassing not only “national defense” but also “general security and the well-being of certain industries” which are considered “critical”.
Hence the absurdity. The auto report cites data from 2017, and that year General Motors was the largest automaker in the world,
that produced 8.9 million vehicles, of which two million were made in the United States. The fourth largest was Ford,
which made 6.1 million cars, 2.4 million of them in the US
The report also claims that, under Section 232, it doesn’t matter whether the supposedly dangerous imports come from staunch American allies – which they do. The # 2 and # 3 automakers in 2017 were Toyota and Volkswagen. In the case of Toyota, its US plants produced a million cars that year. So did Honda and what was then called Fiat Chrysler. Yet the report treats Chrysler as a foreigner as if it were a fifth column in America’s impending war with Italy.
The analysis of Mexico suffers from the opposite problem. “Imports”, annoyed the report, “now exceed American production in the United States.” This narrow framework excludes the capacities of GM and Ford across the border. Automakers have sought efficiency by integrating North American supply chains, and the report admits that “80 percent of Mexican vehicle production is exported to the United States.”
The report states, “Mexico, Canada, Japan, South Korea and the EU make up nearly 98 percent of the cars imported into the US.” How plausibly is this a security threat? The report’s answer is a wave of hands over R&D spending on “key automotive technologies” such as “autonomous driving” and “electrification”. Ever heard of Google and Tesla? GM and Ford are chasing them with huge technology investments.
On a partially redacted line, the report complains that imports “prevented American automakers from raising sales prices”. Impressive. Competition in the auto business has brought consumers better vehicles at competitive prices. What the report specifically calls for is a hidden public tax designed to boost R&D spending. It’s not national security. That is bad industrial policy.
One insight is that Congress should join together and revise or repeal Section 232. The law is so extensive that the government did not refuse a direct response in a 2018 court case to the question of whether the president could unilaterally tax imported peanut butter.
A second point is that the Biden administration should stop being shy about jettisoning President Trump’s protectionism. Ms. Raimondo made compassionate noises about Mr. Trump’s metal tariffs. She should reconsider and President Biden should seize other opportunities, like a post-Brexit deal with the UK.
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