According to the Financial Post, in a statement, the White House said President Donald Trump had asked Commerce Secretary Wilbur Ross to consider whether the imports of automobiles, including trucks, and automotive parts threaten U.S. national security.
In the statement, the president said, “core industries such as automobiles and automotive parts are critical to our strength as a Nation.”
In turn, Commerce Secretary Ross issued his own statement, saying he has launched an investigation under Section 232 of the Trade Expansion Act of 1962 to determine “whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security.”
“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Ross said in the statement.
Ross went on to cite a lot of data showing imports have grown, while other data showed US employment in motor vehicle production has dropped. He also pointed out that US-owned manufacturers account for only 20 percent of global R&D in automotive industry, reports CNET.
So, what the heck is going on?
Basically, Section 232 of the Trade Expansion Act of 1962 allows the president to adjust imports without a vote by Congress should the Department of Commerce find evidence of a national-security threat from foreign shipments.
And being that Wilbur Ross is a former steel tycoon, it was only appropriate he signal to Trump that steel imports were a national security threat – prompting Trump to levy tariffs of 25 percent on imported steel and 10 percent on imported aluminum.
And it looks like this Cold War trade act is Trump’s secret weapon in getting the public to believe auto parts and car and trucks are also a part of our national security. However, should Ross declare they are indeed, necessary to the security of the nation, the federal government will be opening a new can of worms.
Here is one reason why – The U.S. is an important market for many foreign car makers, and quite a few have manufacturing plants here in the U.S. that employ thousands of Americans. If the Commerce Department investigation goes the way it is expected to go, this would mean these foreign car makers could have tariffs imposed on them and this would in turn, impact on the American labor force.
News of the investigation and its likely outcome has already affected investors. This morning, share prices of many foreign OEMs took a dip
And the world is already responding to the news. Gao Feng, a spokesman for China’s Ministry of Commerce, suggested in a press conference that “the abuse of national security clauses… will seriously damage multilateral trade systems and disrupt normal international trade order,” Reuters reports.
Germany’s wasn’t pleased, either. “To cite aspects of national security as justification is totally constructed and far-fetched,” said Eric Schweitzer, head of German’s DIHK Chambers of Industries and Commerce, again according to Reuters.
“We almost have to take this as a provocation. I gain more and more the impression that the United States no longer believes in competition for ideas and customers, but only in the right of the supposedly stronger.”
The real truth
Here’s the truth about all the hoopla over national security interests and the manufacturing sector. Let’s go back to the steel and aluminum tariffs. National security was used as an excuse to levy tariffs on these products. But the term, “national security” has evolved since 1776.
U.S. Secretary of Defense James Mattis, in a memo to Ross, agreed that imports of steel and aluminum “based on unfair trading practices” do “impair the national security.” However, Mattis also pointed out that the military’s requirements for steel and aluminum “each only represent about 3 percent of U.S. production,” so those trading practices don’t have an effect on meeting “national defense requirements.”
When our country was born, the term referred to protection against military attack. Now, national security also includes non-military dimensions, including economic security, energy security, environmental security, food security, cybersecurity and more. The thing is this, there are no written rules for what it should include.
The concept of national security became an official guiding principle of foreign policy in the United States when the National Security Act of 1947 was signed on July 26, 1947, by U.S. President Harry S. Truman. And interestingly, the Act did not define national security, and this ambiguity made it a powerful phrase to invoke whenever issues threatened by other interests of the state, such as domestic concerns, came up for discussion and decision.
Bottom line? How is the Commerce Department going to handle what is considered a consumer good? A “tenuous link between security and American-made cars” could be argued, based on the idea that U.S. supply chains have to be ready to produce military vehicles in wartime, according to a note by Panjiva, part of S&P Global Market Intelligence.
With that being said, it is well known that President Trump has been trying to make good on his campaign promises to “make America great again,” and with the mid-term elections coming up, he is catering to his base in the Rust Belt and Midwest.
At the same time, with the North American Free Trade Agreement (NAFTA) stalled over U.S. production demands, the attempt to put tariffs on autos, trucks, and parts being imported into the U.S. is seen as an attempt to gain leverage in the talks.
One of Trump’s main complaints about the NAFTA agreement has been that it’s helped Mexico emerge as an auto-making powerhouse, according to Bloomberg News.
A person familiar with the NAFTA discussions who wishes to remain anonymous, said the expected tariffs move was aimed partly at pressuring Canada and Mexico to make concessions in the NAFTA talks. The person also said that the president has suggested seeking new tariffs of 20 to 25 percent on automobile imports, according to the Financial Post.
