Section 232? Doesn’t that apply to duties on aluminum and steel? Yes – but it could soon also apply to automobiles and parts.
Section 232 of the Trade Expansion Act of 1962 authorizes the President of the United States, through tariffs or other means, to adjust the imports of goods or materials from other countries if he deems the quantity or circumstances surrounding those imports to threaten national security.
President Trump requested the Department of Commerce to determine if imports of automobiles and parts posed a threat to national security. On Feb. 17, 2019 the Secretary of Commerce returned a report to the President. The report stated that automotive research and development is critical to national security. It said that “the rapid application of commercial breakthroughs in automobile technology is necessary for the United States to retain competitive military advantage and meet new defense requirements. Important innovations are occurring in the areas of engine and powertrain technology, electrification, light-weighting, advanced connectivity, and autonomous driving.” It also said that “increases in imports of automobiles and automobile parts, combined with other circumstances, have over the past three decades given foreign-owned producers a competitive advantage over American-owned producers.” The report noted that American owned producers share of the U.S. market fell from 67% in 1985 to 22% in 2017. Finally, the report said that other countries, specifically Japan and the European Union, imposed significant barriers to U.S. automobiles.
The Secretary of Commerce recommended actions to adjust the levels of automotive imports. One recommendation was to pursue negotiations to obtain voluntary export restraint agreements that address the threatened impairment of national security. If agreements could not be negotiated within 180 days, the U.S. Government could take other actions under Section 232. Presumably, these include special duties.
The U.S. and Japan recently held trade agreement talks. The proposed agreement covered several subjects including discussions about the threatened Sec. 232 actions on automobiles and parts. There was no explicit assurance that the U.S. would not impose Sec. 232 duties on Japanese automobiles and parts. In fact, this issue has prevented completion of an agreement. The President’s top trade advisor, Robert Lighthizer, has stated that tariffs on Japanese automobiles is unlikely. Time will tell what happens with Japanese automobiles and parts.
How about reaching an agreement with the EU? There have been no significant negotiations with the Europeans on this subject.
One side effect of all this is a bipartisan initiative in Congress to limit the President’s authority under Sec. 232, such as requiring an assessment by Department of Defense in addition to Department of Commerce. This initiative may not get too far.
The next major milestone is Nov. 13, 2019 when the 180 days to negotiate agreements expires. Most prognosticators believe there will be an extension at that time. However, the trade has been surprised before and could be surprised again. Japan may be off the hook, but the President could easily impose additional duties on European cars. If that happens look for the EU to impose retaliatory duties on U.S. exports.
Thinking about buying that new Porsche? You may want to do that soon.