Word emerged in May that President Trump wanted to impose tariffs of 25 percent on imported automobiles and automobile parts. Now the Commerce Department, having been directed by the president to find statutory justification for the tariffs, is holding hearings on the issue. These tariffs would be legally dubious and represent another blunderbuss shot at international trade.
It appears the administration would justify the tariffs under the same provision — section 232 of the 1962 Trade Expansion Act, which gives the executive broad authority to adjust tariffs if doing so is in the interests of U.S. national security — that it cited for the recently imposed steel and aluminum tariffs. As we have argued repeatedly, the invocation of this statute is an abuse of executive authority that distorts the law beyond its meaning; imported Mercedes sedans have even less to do with American national security than does Canadian steel.
On the merits, the policy is no better. Globally integrated supply chains mean that cars manufactured in the United States (which include both domestic and foreign brands) often use imported parts, and that domestic companies occasionally manufacture overseas. The retaliatory tariffs that would surely follow would hurt American automobile exporters. All of this belies Trump’s stated rationale of protecting American auto companies, which is likely why foreign and domestic auto companies alike, as well as some automobile-production workers, have lobbied against the tariffs in recent days.
Of course, one way for companies to offset new costs is to raise prices, and here the tariffs have the potential to do real damage to American consumers. List prices for popular, mid-level vehicles have been projected to rise by anywhere from $1,800 to more than $5,000 if these tariffs are imposed. Since the taxes apply to car parts, repairs and insurance would also become more expensive. At a time when the economy is humming along, reducing the spending power of consumers like this would be a self-inflicted wound.
The president has been complaining about the rules for automobiles since before his presidential campaign, so none of this should be any surprise. Under the WTO’s most-favored-nation rules, the U.S. is bound to keep duties on automobiles under 2.5 percent; the EU, meanwhile, can impose tariffs up to 10 percent, while China can impose tariffs of a still-higher rate. Trump insists this disparity is unfair, but the way to remedy it without imposing significant costs on workers, consumers, and exporters is to pursue multilateral trade deals with other countries. The proposed Transatlantic Trade and Investment Partnership (TTIP) deal, for instance, would have gradually reduced the automotive-industry barriers of both the U.S. and the EU to zero. Needless to say, the reduction to zero of barriers on automotive imports and exports would confer more economic benefits on Americans than would the indiscriminate ratcheting up of barriers worldwide.
But the Trump administration again appears to be opting for a different path. We hope Congress marshals something beyond symbolic opposition to the tariffs — legislation recently introduced in the Senate by Pat Toomey (R., Pa.) would subject the president’s section 232 authority to congressional approval and deserves to pass — and we regret that the president may take another, more serious lurch toward a trade war with our allies.
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