0548 GMT February 25, 2020
President Donald Trump met with his trade advisers on Tuesday to discuss, among other things, the status of a Commerce Department investigation into trade practices that began last May, CNBC wrote.
It could result in sanctions under section 232 of the Trade Expansion Act if it's determined that auto imports pose a threat to national security. But critics, including virtually the entire auto industry, as well as several foreign leaders, have warned that such a move could touch off a much wider trade war.
The auto industry also fears that new tariffs, on top of those already enacted on Chinese-made vehicles and imported aluminum and steel, could have a major negative impact on the American new car market. Consumers could be hit with higher prices that would put the brakes on already declining car sales, hammering industry profits.
More than $1 billion
Ford and General Motors noted in recent weeks that the aluminum and steel tariffs alone will cost them each about $1 billion more than they expected for raw materials this year alone. Fiat Chrysler and foreign-owned manufacturers with assembly operations in the US also are feeling the impact.
"Costs have gone up and (are being) passed onto end consumers," Jack Hollis, the general manager of the Toyota division for Toyota Motor North America told CNBC after a media preview of the 2020 Corolla. The sedan will be assembled at two US plants, including one now being built in Alabama as part of a joint venture between Toyota and Mazda.
The auto industry has found itself at ground zero in the Trump Administration's trade war. Indeed, then-candidate Donald Trump put Ford in the spotlight early in his campaign, publicly calling the automaker out in 2016 for planning to move production of some passenger car models to Mexico.
"We shouldn't allow it to happen," the then-candidate said in September 2016, while warning he would enact major tariffs targeting the Detroit automaker if he won. In turn, Ford Chairman Bill Ford called the comments, ‘infuriating’. But despite meeting with Trump, the blistering comments and tweets continued, even after the 2016 election. If anything, President Trump turned up the heat, also targeting GM, Toyota and other automakers in his steady stream of tweets.
Automakers might have learned to live with the criticism, but words have turned into costly deeds. There are the aluminum and steel sanctions that have had a major impact on an industry that is one of the country's largest users of raw metals. Then there's the trade war with China.
Currently, the US imports relatively few vehicles from that country — a small but growing list of models sold by Volvo and GM's Buick division. But imports of car parts run into the billions of dollars.
Over the past two decades, as China grew from a backwater into the world's largest automotive market, most foreign carmakers have set up manufacturing facilities in-country. But there are still a significant number of auto imports, including the 267,000 vehicles the US shipped to China in 2017. They now face tariffs of 40 percent, up from the 25 percent duties in place before the trade dispute began.
The irony is that early this year, Chinese President Xi Jinping announced plans to take several steps to ease trade tensions on the automotive front, among other things, cutting import tariffs to 15 percent.
The unintended consequence is that vehicles imported from the US now are even less competitive in the world's largest automotive market, even as vehicles produced in, say, Japan, South Korea, Britain or Germany, have become more competitive there since they face reduced tariffs.
For those bringing Chinese-made vehicles to the US, the choice has been whether to raise prices or cut into profits. For those exporting to China, they face a similar challenge: swallow the added tariffs or watch sales dry up.
Ford has been hammered both ways. In early 2017, the automaker canceled plans to build its Focus sedan at a new plant in Mexico. But rather than bringing the car back to the US, it decided to move production to China. Now, that plan has been scrapped, as well. In light of increased tariffs, Ford is killing off the Focus model entirely.