May 24, 2018 / 3:26 AM / a year ago

Breakingviews - U.S. threatens autos with scorched-earth gambit

A Chevrolet Bolt EV vehicle is seen on the assembly line at General Motors Orion Assembly in Lake Orion, Michigan, U.S., March 19, 2018. Photo taken March 19, 2018. REUTERS/Rebecca Cook

NEW YORK (Reuters Breakingviews) - The White House is threatening the automotive industry with a scorched-earth gambit. President Donald Trump on Wednesday asked Commerce Secretary Wilbur Ross to consider a so-called Section 232 investigation on all imports of vehicles and parts. That may well just be his fuel-injected bargaining chip for negotiations with partners in NAFTA, the North American trade pact. If the levies actually happen, though, it would leave domestic and foreign automakers reeling.

Pinning the move on national-security concerns is patently absurd. Around 80 percent of the 17.3 million cars and light trucks sold in America last year were also manufactured there – though the figure is lower for parts.

Nonetheless, one of Trump’s campaign pledges was to bring more manufacturing jobs back to the country. And NAFTA partners Canada and Mexico are the first- and third-largest exporters of auto products across the border. It’s that dependence that the White House may be hoping to exploit.

Tariffs would be an act of self-harm. Prices would rise, pretty much immediately. Automakers would also have to scramble to find – or help create - suppliers in the United States able to meet all their needs quickly and in size.

Even a small interruption in the process can be costly: a fire at a Michigan parts-maker halted production of the Ford F-150 for more than week, and could hit second-quarter profit by up to $300 million. Shifting some parts production to Canada helped Ford start up its own factories quickly; such flexibility would be far harder if Trump imposes tariffs.

Nor would levies drive much extra business Detroit’s way. Fiat Chrysler, General Motors and, more recently, Ford now focus on selling SUVs and trucks. They already dominate the U.S. market for such vehicles – and Ford reckons they’ll account for some 90 percent of its sales in a couple of years.

Meanwhile, the likes of Japan’s Toyota, Germany’s Volkswagen and Korea’s Kia would face a harsh choice. They could spend time and money shifting more production to the United States – Toyota already makes 1.4 million vehicles stateside of the 2.4 million it sells in North America each year. Or they could resign themselves to selling fewer cars. Either way, the tariffs on parts would push up prices and make smaller cars even less economical to make.

That could force Americans to spend more money on a narrower choice of vehicles. It’s hardly a desirable outcome for anyone - which means the best hope is that all sides reach a compromise before it happens.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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