Potential Auto Tariffs Prompt Warnings From Industry and Allies

The president has often vowed to defend and strengthen American manufacturing, but some critics believe that he doesn’t take into account the complex web of materials and components that are sourced from around the world.

WASHINGTON — President Trump likes to keep allies and adversaries guessing, but his decision to begin a trade investigation that could trigger auto tariffs was met by surprise at home and abroad, and prompted warnings that it could destabilize global supply chains.

Mr. Trump has argued that tariffs would encourage companies to move production back to American soil after years of offshoring and he has seized on levies as a way to force trading partners to make concessions, such as limiting exports to the United States.

But critics of Mr. Trump’s approach say the president is sowing uncertainty that threatens to undercut economic growth and send trading relations to a previously unseen level of disarray.

Mr. Trump’s latest tariff threat came Wednesday, in the middle of a series of foreign policy challenges: White House officials canceled a meeting with North Korea, drew the ire of lawmakers by considering easing penalties on a Chinese telecom firm and said they had secured a $200 billion trade concession with China, only to have the deal fall through.

But that wasn’t all. This week, India filed formal challenges to Mr. Trump’s steel and aluminum tariffs at the World Trade Organization, joining the European Union, Japan, Russia and Turkey.

Even members of the president’s own party warned of the debilitating uncertainty businesses are facing from his scattershot approach.

“You pass a permanent tax reform for corporations and say, let’s do business in America,” said Douglas Holtz-Eakin, the president of the American Action Forum, a conservative-leaning think tank, and a former director of the Congressional Budget Office. “And then every day, you don’t know which of your goods will have a tariff wall around it. It makes no sense.”

Promises to shake up American trade were a mainstay for the president on the campaign trail, and the idea of auto tariffs graced the trade to-do list on the white board in the office of the former White House adviser Steve Bannon in the early months of the administration. On Thursday, the United Autoworkers President Dennis Williams was cautiously optimistic about the president’s decision to examine auto imports on national security grounds. Mr. Williams said he believed the United States should have been looking into imports long ago.

But beyond the president’s base, the threat of tariffs on cars, trucks, S.U.V.s and auto parts appeared to provoke alarm from nearly every corner, with warnings that it would ultimately hurt American workers and consumers more than anyone else.

“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,” said Thomas J. Donohue, the president of the U.S. Chamber of Commerce.

Senator Patrick J. Toomey, Republican of Pennsylvania, blasted the potential for tariffs on imported vehicles as a “bad idea,” and added, “This is a dangerous course and should be abandoned immediately.”

The administration authorized the investigation under the same legal statute it used to impose tariffs on steel and aluminum imports in March. As with that action, the Commerce Department on Wednesday said imported vehicles may pose a national security threat because they had degraded American manufacturing and put domestic technological development at risk.

But many find the national security argument specious. Roughly 44 percent of cars, trucks and S.U.V.s sold in the United States last year were imported, but 98 percent of American car imports came from major allies, like Canada, Mexico, the European Union, Japan and South Korea.

And while Mr. Trump wants to punish imports, the nature of car manufacturing means that tariffs could affect products even if they were largely made in America or made by American companies. The supply chains of both American and foreign branded cars crisscross international borders, and all the major brands use a variety of parts sourced from abroad, even if the vehicles are assembled in the United States. The Chevrolet Suburban, for example, draws a larger share of its parts from Mexico than from the United States and Canada combined, according to the National Highway Traffic Safety Administration.

Chrystia Freeland, the Canadian foreign minister, said that the idea that there could be a national security threat posed by cars and car parts from Canada — many of which cross the border multiple times in their journey from the factory to the customer — was “frankly absurd.”

“That is a point that we are making very clearly to our U.S. partners and allies,” she said.

Margaritas Schinas, the senior spokesman for the European Commission, said there was “no justification” for the United States to impose tariffs on steel and aluminum on national security, grounds. “Invoking national security would be even more far-fetched in the case of the car industry,” he said.

In an interview Thursday on CNBC, Commerce Secretary Wilbur Ross, who is leading the investigation, said the administration was defining national security “broadly,” to include the impact on employment and other factors. “Economic security is military security,” he said. “And without economic security, you can’t have military security.”

Mr. Trump has framed the threat of tariffs as a potential source of leverage in talks to rewrite the North American Free Trade Agreement, which have largely stalled over rules governing how carmakers can qualify for Nafta’s zero tariffs.

On Wednesday, President Trump said automakers would be “very happy” with his announcement. But few seemed pleased.

While many companies said they were still waiting to see the likely effect of the measure, carmakers, auto parts suppliers and car dealers said it threatened to raise their costs, depress auto sales and jobs in the United States, and make American-made products less competitive worldwide. The industry has already been hit by the tariffs on steel and aluminum, which have weighed on their profit margins, and the threat of looming trade action against China, as well as potential Chinese retaliation.

“If the tariffs actually went into effect, it would upend the supplier industry,” said Ann Wilson, senior vice president for government affairs at Motor & Equipment Manufacturers Association, which represents auto parts makers. “We are very dependent on the ability to bring in parts from other parts of the world for final production in the U.S., and if that’s no longer financially viable, the question becomes, is the production of vehicles in this country going to be financially viable?”

Kristin Dziczek, the vice president of Industry, Labor & Economics at the Center for Automotive Research, said automakers would be slow to adjust their own investment decisions until they see how any potential tariff decisions might come to pass.

“This is an industry that is big and slow and costs lots of money to build up capacity,” she said. “It’s unclear how this all proceeds. But what it does immediately is introduce a lot more risk and uncertainty into an industry that doesn’t deal well with uncertainty.”

Despite the president’s vow to defend and strengthen American manufacturing, companies said they worried that the president and his advisers did not understand the complex web of materials and components that are sourced from around the world, and how they support vast numbers of American jobs. They also worried that foreign retaliation could hinder United States automakers from selling abroad.

Mark Zandi, chief economist at Moody’s Analytics, estimated that if partners do not retaliate, a 25 percent auto tariff would boost the size of the United States economy by 0.04 percent a year, adding 23,000 jobs in the process. Americans would buy 160,000 fewer vehicles in that time, he estimated, but domestic automobile production would increase by 300,000 vehicles because more of the cars purchased would be made in the United States.

But if other countries were to retaliate with tariffs of their own, Mr. Zandi said, “G.D.P. and jobs will decline.”

Several leading Democrats and Republicans criticized Mr. Trump’s fondness for injecting confusion into trade matters.

Mr. Trump’s strategy “starts with bluster and it tends to end with uncertainty,” said Representative Richard E. Neal of Massachusetts, the top Democrat on the Ways and Means Committee. “There’s one arena in which measured responses are important, it’s in the international trade arena. It’s certainly going to have effects on investors and consumers.”

Senator Orrin G. Hatch of Utah, the Republican chairman of the finance committee, called the talk of auto tariffs “deeply misguided.”

“Taxing cars, trucks and auto parts coming into the country would directly hit American families who need a dependable vehicle,” he said.

Senator Michael Bennet, Democrat of Colorado, who has criticized Mr. Trump for exposing farmers and ranchers to retaliation from trading partners, said the president was “trading away our long-term interests in exchange for short-term headlines.”

“I don’t think there’s any coherence to either the trade policies that he’s pursuing or how he engages our trading partners in the work of negotiating the agreement,” he said.

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