May 23, 2018 / 1:45 PM / 4 months ago

Trump threat of auto tariffs opposed by auto industry, Republicans

(Reuters) - President Donald Trump’s threat to impose tariffs on auto imports drew strong criticism abroad and at home where U.S. business groups and members of his own Republican Party warned of damage to the industry and raised the prospect of a global trade war that would harm American interests.

The Trump administration opened a trade investigation on Wednesday into whether vehicle imports had damaged the U.S. auto industry. That could lead to tariffs of up to 25 percent on the same “national security” grounds used to impose U.S. steel and aluminum duties in March.

Governments, lawmakers, auto companies and industry groups from Asia to Europe to Canada and in the United States pushed back hard against the move, with many saying it would add to consumer costs and hurt jobs. The country’s largest auto union gave muted support for the investigation.

“If this proposal is carried out, it would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war,” U.S. Chamber of Commerce President and Chief Executive Officer Thomas Donohue said in a statement. The influential lobbying group’s head urged the administration to reverse course.

U.S. Commerce Secretary Wilbur Ross said on Thursday the investigation was still in its early stages but that other countries’ high, artificial barriers, such as tariffs and other interventions, have skewed the marketplace.

“Now it’s very difficult to get back to a reciprocal arrangement,” Ross said in an interview on CNBC, a day after announcing the investigation.

The Alliance of Automobile Manufacturers, the trade group representing major U.S. and foreign automakers, indicated it did not favor the move, urging the administration to “remove barriers to free trade” and saying it was confident that vehicle imports do not pose a national security risk.

Last year, 13 domestic and international automakers made nearly 12 million vehicles in the United States, it said, and “the sector remains the leading exporter of manufactured goods in our country.”

The United States exported nearly 2 million vehicles worldwide worth $57 billion last year, according to U.S. government statistics. At the same time, it imported 8.3 million vehicles in 2017 worth $192 billion, including 2.4 million from Mexico, 1.8 million from Canada, 1.7 million from Japan, 930,000 from South Korea and 500,000 from Germany.

‘FLIMSY LOGIC’

Canadian Prime Minister Justin Trudeau said the U.S. decision was based on flimsy logic and clearly linked to talks to modernize the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico.

Tariffs would shave 0.16 percent off the economic output of Germany, Europe’s largest economy, the influential Ifo think tank said. “No other country has higher absolute losses to fear than Germany,” said Gabriel Felbermayr, foreign trade expert at Ifo.

Together, German carmakers BMW (BMWG.DE), Daimler AG (DAIGn.DE) and Volkswagen AG control more than 90 percent of the North American premium auto market.

German Finance Minister Olaf Scholz said the European Union should be united in its response to the threat of U.S. tariffs.

FILE PHOTO: U.S. President Donald Trump talks with auto industry leaders, including General Motors CEO Mary Barra (4th L) and United Auto Workers (UAW) President Dennis Williams (4th R) at the American Center for Mobility in Ypsilanti Township, Michigan, U.S. on March 15, 2017. REUTERS/Jonathan Ernst/File Photo

The probe comes ahead of midterm elections in the United States in November that will determine whether the Republican Party retains control of Congress. It is seen as part of Trump’s “America First” promise to win back manufacturing jobs lost to overseas competitors.

United Auto Workers union President Dennis Williams said he supports Trump’s trade policies and his efforts to protect American workers from competition from low-wage countries.

But he said that did not mean the UAW was ready to support Republicans running for Congress this year. “The Republican Congress and Senate, they have totally ignored the needs of working men and women in this country,” Williams said.

Several congressional Republicans criticized the investigation amid a trade spat with China, saying it was being pursued under false pretenses and could hurt American consumers.

U.S. Senate Finance Committee Chairman Orrin Hatch said possible auto tariffs are “deeply misguided,” and urged the administration “to remain focused on addressing China’s trade practices.”

Auto executives, speaking on condition of anonymity, said Congress members were considering holding hearings on the move and could seek to pare back the president’s authority to order such investigations under Section 232 of the Trade Expansion Act of 1962.

Pointing to a mixed bag of effects on U.S. producers after the metals tariffs, analysts were cautious about predicting major gains for U.S. companies and workers from the process.

“Measures like this are ultimately about protecting American manufacturing jobs in states that voted for Trump rather than national security,” Morningstar analyst David Whiston said in a note.

“We don’t see these tariffs (if proposed) lasting forever and we think (they) will ultimately cost American jobs.”

Shares of General Motors Co (GM.N) closed up 1.4 percent and Ford Motor Co (F.N) ended up 1.7 percent.

In Europe, BMW (BMWG.DE) and Daimler (DAIGn.DE) shares dropped as much as 3.5 percent during the session, while Volkswagen AG (VOWG_p.DE) closed down 2.5 percent.

Renault SA (RENA.PA), exposed to the U.S. market via its 43.4 percent stake in Nissan, fell as much as 2.1 percent. Europe’s auto sector index .SXAP lost 2 percent and was on track for its worst day in 10 months.

Higher tariffs could be particularly painful for Asian automakers, including Toyota Motor Corp (7203.T), Nissan Motor Co (7201.T), Honda Motor Co (7267.T) and Hyundai Motor Co (005380.KS), which count the United States as a key market. The probe sparked a broad sell-off in automakers’ shares across the region. [MKTS/GLOB]

Toyota dropped 3 percent and Honda slid 3.4 percent.

Toyota, which has 10 U.S. plants and 1,500 U.S. dealers, said in a statement that any tariffs “could hurt American jobs” and raise costs for consumers.

The governments of Japan, China and South Korea said they will monitor the situation, while Beijing, which is increasingly eyeing the United States as a potential market for its cars, added that it would defend its interests.

Reporting by David Shepardson, Jeff Mason and Susan Heavey in Washington, Joe White in Detroit, Rachit Vats in Bengaluru, Edward Taylor in Frankfurt and Laurence Frost in Paris, Esha Vaish in Stockholm, Phil Blenkinsop in Brussels and Michelle Martin in Berlin; writing by Susan Thomas; editing by Jeffrey Benkoe and Jonathan Oatis

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