Feb 19, 2019 - 11:00am

Not Just a Fender Bender: Tariffs Could Wreck the U.S. Auto Sector


Senior Vice President for International Policy

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An employee inspects a door at the Honda auto plant in Marysville, OH.
An employee inspects a door at the Honda auto plant in Marysville, OH.

The White House has received a report from the Commerce Department on whether imports of automobiles and auto parts “threaten to impair the national security.” Officials are said to be considering applying tariffs as high as 25% to approximately $350 billion of imported autos and auto parts.

This is a huge deal. As U.S. Chamber President and CEO Thomas J. Donohue stated when the tariff threat was first announced:

The U.S. Chamber strongly opposes the administration’s threat to impose tariffs on auto imports in the name of national security. If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.

The U.S. Chamber argued in comments submitted ahead of the hearing that the U.S. auto industry is prospering and the vast majority of industry stakeholders do not support these proposed tariffs. Automakers and auto parts suppliers constitute the largest U.S. manufacturing sector, and it has enjoyed robust growth over recent years in part due to expanded trade opportunities.

In fact, U.S. auto production has doubled over the past decade, and the sector employs nearly 8 million Americans – nearly 50% more American workers than it employed in 2011, according to the American Automotive Policy Council. The industry is also America’s largest exporter of manufactured goods.

These benefits are shared across every state in the Union: As the Alliance of Automobile Manufacturers avows: “Every State is an Auto State.”

International trade – especially but not exclusively within North America – has strengthened the U.S. auto sector. The reduction in production costs made possibly by global supply chains has powered job creation and funded payrolls for firms from family-owned auto parts manufacturers to the global companies that underwrite some of the largest R&D budgets in the United States.

Indeed, access to imports has enhanced innovation in the industry, expanded consumer choice, and allowed firms to remain globally competitive by sourcing specific inputs from abroad. According to Here for America, a coalition representing international automakers, these foreign-headquartered firms have invested more than $75 billion into U.S. operations, with manufacturing plants in 14 states and R&D facilities in 16 states. In doing so, they have generated 1.29 million direct and indirect U.S. jobs with a direct employee payroll of $11.3 billion in 2016.

Simply put, imports of autos and auto parts do not undermine national security. Given the robust health, vast size, and technological sophistication of the U.S. auto industry, even the most generous assumptions with regard to national security would find U.S. industry extremely well situated to meet said demands.

The vast majority of auto imports come from five countries – Mexico, Canada, Japan, Germany, and South Korea– all of which are close partners and allies of the United States. These allies are understandably offended at the notion that their fairly traded goods – and investments in the U.S. economy – could represent a threat to U.S. national security.

Officials’ comments to the press have made clear that the intention of the tariff threat is to create leverage in trade negotiations such as those relating to NAFTA and ongoing discussions with Japan and the EU. This is an inappropriate and unlawful use of this statute. It is the U.S Chamber’s view that the executive’s Section 232 authorities should not be abused in this way, and doing so only encourages other nations to raise their own trade barriers against U.S. exports in the name of national security.

Imposing a 25% tariff on autos and auto parts would be extremely damaging to the U.S. economy. According to a stud by the Center for Automotive Research, this action would lead to the loss of as many as 700,000 American jobs and price hikes for new cars averaging $4,400 per vehicle.

Because all autos sold in the United States are manufactured with substantial amounts of foreign-made content, significant price hikes for all models would be expected. As a result, consumers would purchase fewer cars, reducing production as well as jobs with dealers. All of this would contribute to downward pressure across the U.S. economy.

The performance of the U.S. economy over the past two years has been impressive. Unemployment is at its lowest level in decades, and output has expanded briskly. These results are more than purely cyclical: Historic tax and regulatory reforms are paying dividends and are likely to do so for years to come.

For the auto industry, these reforms and other changes have made the United States an increasingly attractive place to invest, hire, and manufacture.

But tariffs on autos and auto parts would put this all at risk, and American families, workers, and companies will pay the price.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.