On Trump’s Car Tariffs, Companies Are United in Dissent

The General Motors Lansing Delta Township Assembly Plant in Lansing, Mich. The Trump administration is considering tariffs on foreign automobiles and parts, but even cars made in America contain many parts from abroad.

WASHINGTON — Richard Smallwood describes himself as a “pretty far right-wing conservative” and a longtime supporter of President Trump. But like many in the auto industry, Mr. Smallwood, the president of the tire company Sumitomo Rubber North America, has been puzzled and dismayed by the president’s proposal to impose tariffs on foreign automobiles and their parts.

“He’s the president of the United States, and I just sell tires,” said Mr. Smallwood, whose company imports tires from abroad. “I have to be careful about second-guessing him, but I wish it were a more logical approach.”

On Thursday, Mr. Smallwood appeared at a government hearing on the sweeping tariffs the administration is now considering, along with other suppliers, and representatives from car companies and foreign countries. Unlike the previous hearing on the administration’s metals tariffs, which drew some support, the testimony of those who appeared on Thursday was almost uniformly negative and punctuated with concerns about how tariffs would raise their costs, stifle innovation and dampen their plans for expansion and hiring.

“Every aspect of the U.S. automotive value chain is united in its concern on this issue,” said John Bozzella, the chief executive of Global Automakers, which represents international car companies. “You cannot find a company that has asked for this protection.”

Whether Mr. Trump listens will be a big test of whether his protectionist instincts will prevail over the concerns of an industry he has continually vowed to protect.

Labor unions have been more supportive of the Trump administration’s efforts, though they have warned about the potential harm of disrupting global supply chains and urged Mr. Trump to proceed carefully. In testimony on Thursday morning, Jennifer Kelly, the director of research at the United Auto Workers union, said that American workers had been harmed by decades of offshoring, and that a comprehensive investigation into the effect of foreign production on domestic manufacturing was “long overdue.”

“We caution that any rash actions could have unforeseen consequences, including mass layoffs of American workers,” Ms. Kelly said, adding “but that doesn’t mean we should do nothing.”

In May, the Commerce Department said it would investigate whether auto imports threaten American national security, by reducing domestic research and development in cutting-edge technologies. The investigation is just one of many trade measures the administration has taken as it tries to revive American manufacturing, a key campaign promise by Mr. Trump. The administration has already imposed tariffs on steel and aluminum and, on Wednesday, said it would begin another security-related investigation into uranium.

But the potential size and impact of the auto tariffs would dwarf those other measures. While the Trump administration has imposed tariffs on around $48 billion of steel and aluminum imports, the new tariffs could be levied on up to $351 billion of automobile and auto part imports.

Mr. Trump himself has threatened levies of 20 or 25 percent on foreign cars and implied that such penalties could help the United States negotiate better terms for trade with Mexico, Canada and the European Union. He and other administration officials say the United States is at a disadvantage and that better trade deals could ultimately add American jobs.

Yet auto companies have warned that erecting barriers to trade could be devastating for what is a highly globalized industry, in which cars and their parts are manufactured and shipped around the world.

Even cars with the highest percentages of American-made content regularly source a quarter to a third of their parts from abroad, industry statistics show. Last year, 52 percent of cars sold in the United States were manufactured in the country, with nearly half of those made by international firms like BMW, Daimler and Honda, according to the Center for Automotive Research, a nonprofit research organization.

[Read more about BMW’s ties to the United States.]

“We would argue that the supply chain allows us to remain competitive in this global market,” Jennifer Thomas, the vice president of federal government affairs at the Alliance of Automobile Manufacturers, which represents Ford, General Motors, Toyota and other global automakers, said at the hearing Thursday morning.

A study released Thursday by the Center for Automotive Research estimated that tariffs or quotas could cause the price of an average new vehicle sold in the United States to rise by $980 to $4,400, depending on the specifics of the policy.

The study, which was commissioned by the National Automobile Dealers Association, found that tariffs would increase American vehicle production. But the industry would still lose tens or hundreds of thousands of jobs over all as tariffs reduced employment at auto parts companies and higher prices discouraged consumers from buying cars, leading to lost jobs at dealerships.

A forthcoming study by economists at the Peterson Institute for International Economics, a think tank, has produced similar findings, showing that a 25 percent tariff on all imported cars, trucks and auto parts would raise car prices for buyers by $1,400 to $7,000 for the top-selling cars and sport-utility vehicles.

In a comment letter submitted to the Commerce Department last month, General Motors cautioned that auto tariffs could lead to “less investment, fewer jobs and lower wages” for its employees.

A decision on whether to impose the tariffs could come at any time. The Commerce Department has 270 days from when it initiated the investigation in late May to complete it, and the president will have 90 more days to decide what to do.

John Hall, a maintenance worker at the Hyundai Motor Manufacturing plant in Montgomery, Ala., who testified in Washington on Thursday, said he hoped the president would take the industry’s views into account. His colleagues had told him to “get the message to the president, get the message to the congressional leaders,” he said. “Bend their ears. We don’t need tariffs.”

In remarks before the hearing Thursday, Commerce Secretary Wilbur Ross said that the investigation would be fair and that its results were not predetermined.

Yet the president’s pledge to impose a hefty tariff has sparked fears that the outcome is already decided, especially after the Commerce Department reduced the public hearing to one day rather than two.

“This is a show trial,” said Adam Posen, the president of the Peterson Institute for International Economics. “This is the kind of thing autocratic governments do with their economic policy. They don’t allow evidence-based processes and rules-based processes to work.”

Others have warned that stiff tariffs would lead to further retaliation from foreign countries that have already increased their duties on American products in response to Mr. Trump’s metal tariffs.

“When we do this, I’ll use a technical trade negotiator’s term, all hell’s going to break loose,” said Rufus Yerxa, the president of the National Foreign Trade Council, which represents American exporters. “We’re not going to end up with a better environment in negotiation.”

On Thursday, Alcoa lowered its earnings forecast for 2018, citing aluminum tariffs.

Mr. Trump has been particularly focused on the European Union, which charges a 10 percent tariff on imported cars. The United States levies a tariff of only 2.5 percent on foreign cars, though it charges a 25 percent tariff on foreign trucks.

On Wednesday, the president said he and his advisers could exact “tremendous retribution” on other countries if the negotiations did not turn out in his favor, adding that cars were the “big one” when it comes to United States-Europe trade.

“We want to defuse the situation as soon as possible, before it blows up in our faces,” Cecilia Malmstrom, the European commissioner for trade, said in Brussels on Wednesday. She said Europe was preparing retaliatory measures to unleash if the United States imposes the tariffs.

In a letter on Wednesday, 149 members of Congress warned that tariffs aimed at protecting the United States could backfire, by undermining economic security.

The national security connection has also puzzled Mr. Smallwood, who describes himself as deeply “pro-military.”

“I’m somebody who believes in protecting America,” he said. “But the product coming in doesn’t damage any of that. Business is so global now we have to have these global supply chains. To say that because we’re importing some part, that it weakens our industry, that’s nonsense."

Sumitomo Rubber imports tires from factories in Japan, Thailand and Indonesia, but it also makes some of its products in Buffalo. The company had been planning to quadruple production at that factory by 2020, but Mr. Smallwood said the tariffs would put those plans at risk.

“It just leaves less money for us to invest in modernizing our plant here or hiring new people,” he said.

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