Legislation to delay US Section 232 automotive tariffs reintroduced
Legislation that would delay the imposition of additional Section 232 tariffs on automobiles and automotive parts imported by the United States has been reintroduced by two US Senators.
The Automotive Jobs Act, reintroduced by Senators Doug Jones (Democrat, Alabama) and Lamar Alexander (Republican, Tennessee), “would require the International Trade Commission (ITC) to conduct a comprehensive study of the well-being, health and vitality of the United States automotive industry before tariffs could be applied,” the senators said in a statement on Wednesday January 15.
President Donald Trump in May directed the Commerce Department to initiate a Section 232 investigation into whether imported automobiles, trucks, and parts threaten US national security and, if so, to subsequently levy tariffs. Commerce is expected to finish its investigation and make its recommendation to the president next month.
“This bill would delay the administration’s proposed 25% tariff on automobiles and automotive parts imported into the United States until the president has a second opinion from the International Trade Commission about the effect those tariffs would have on the more than 7 million jobs in the American automotive industry,” Alexander said in the statement.
“By having a deeper look at the state of the auto industry, an ITC study would shed light on the impacts that tariffs would have and would make it undeniably clear to the president that this industry is not a national security threat,” Jones said.
While the Section 232 legislation allows the president to investigate whether imports threaten national security, national security is elastically defined under the statue. This means that it allows the president and Commerce to consider any aspect of the US economy that might be affected by imports and that there is no limit on the actions the president can take to remedy security threats under Section 232.
The American Institute for International Steel (AIIS) filed a lawsuit challenging the constitutionality of Section 232 and the case was heard by a three-judge panel at a US Court of International Trade (CIT) hearing last month.
The potential Section 232 tariffs on automobiles and automotive parts imports could disrupt a highly integrated global supply chain in which global automakers operating within the North American Free Trade Agreement (Nafta) region have previously been able to freely move parts within that region.
US vehicle sales are increasingly composed of imports, which represented a 48% share in 2017 compared with 41% in 2010, Congressional Research Service (CRS) said in a report in October. More than half of imported vehicles were manufactured in Canada or Mexico with significant US content, including engines, transmissions and other components. Some assemblies, such as steering and braking systems, cross the border up to six times as plants in the Nafta region add components, the report said.
The Center for Automotive Research estimated that a 25% tariff applied to all vehicles sold domestically could raise the price of an average car sold in the US by $4,400, CRS said in the report.
The Peterson Institute for International Economics estimated similar price increases. These would be on top of any price increases from the steel or aluminium tariffs. The economic side effects could be minimized if the tariffs are used in the short term as negotiating leverage.
Under the legislation proposed by Jones and Alexander, the ITC would be required to assess, among other things, the number of automobiles assembled in the US that are exported each year and to which countries, the percentage of automobile components assembled in the US that are imported, the number of component parts for automobiles that are not produced in the US and would thus not be available to domestic automotive producers if prohibitively high duties were imposed on imports of those parts and the effect that an increase in automotive manufacturing costs would have on US jobs.
The ITC would be required to deliver its report to Congress and include policy recommendations based on the study. Under the proposed legislation, tariffs on automobile and automotive parts imports could not be applied until this report is delivered.
The price of hot-rolled coil, a benchmark steel product used in automotive applications among others, has experienced great volatility since the imposition of the Section 232 tariffs on steel and aluminium imports in March.
Fastmarkets AMM’s daily US Midwest hot-rolled coil index stood at $34.58 per hundredweight ($691.60 per ton) on January 17, matching the roughly one-year low established on January 11 and down from the nearly 10-year high of $45.84 per cwt on July 5, 2018.