President Donald Trump’s push for tariffs on imported cars and trucks threatened a shake-up of the global auto industry while motivating nations including China and Germany to reiterate commitments of varying strength to free trade.
The U.S. statement late Wednesday that it’s investigating auto imports on national security concerns drew pointed responses from Japan and South Korea — two nations that have been at pains to placate Trump — as well as Germany.
It also ended the temporary calm between the U.S. and China, which in contrast to Washington’s actions announced on Thursday it will reduce import duties on a range of consumer goods in a bid to open its market to outsiders.
The competing headlines demonstrate how the world’s two largest economies are likely set for years of skirmishes over commerce as Trump already backs away from an agreement struck just last weekend with China amid domestic criticism.
“Imposing broad, comprehensive restrictions on such a large industry could cause confusion in world markets, and could lead to the breakdown of the multilateral trade system based on WTO rules,” Japanese Trade Minister Hiroshige Seko said Thursday in Tokyo. Automakers were the biggest drag on Japan’s Topix stock index on Thursday.
Trump’s latest probe will be conducted under Section 232 of a 1960s trade law, the same tool the president invoked in imposing global tariffs on imported steel and aluminum earlier this year. An additional tariff on vehicles of up to 25 percent is also under consideration, according to a person familiar with the matter who asked not to be identified.
Free, Fair Trade
On Thursday, German Chancellor Angela Merkel downplayed her nation’s own discomfort with China’s industrial rise, and locked arms with Premier Li Keqiang in a pointed defense of the multilateral trading order.
“China and Germany are committed to multilateralism, and we are committed to free and fair trade,” Merkel said flanked by Li in Beijing. China’s planned duty cuts on consumer goods would bolster its negotiating stance with the U.S. as talks over averting a trade war continue.
While the threat of new tariffs didn’t specifically point to Germany, it would strike at the heart of the German economy, further straining relations between the two sides as they’re locked in negotiations over steel and aluminum tariffs that are set to hit the European Union on June 1. Trump has made clear that he resents Berlin’s trade surplus, which amounted to 14.2 billion euros ($16.7 billion) last year for Germany’s auto industry alone.
In response to the new car tariffs, South Korea’s government said it has formed a task force with automakers and car associations to review the potential impact on the local auto industry of the U.S. move and to consider countermeasures.
Beijing also weighed in, with a Ministry of Commerce spokesman saying “China opposes the abusing of national security provisions, which would severely undermine the multilateral trading system, and disrupt the normal trade order.”
Separately, China is planning a tariff reduction in a broad range of consumer goods, which would be effective as early as July 1, and would apply to significantly more product lines than a similar reduction on around 200 items announced last year, according to people familiar with the matter. U.S. Commerce Secretary Wilbur Ross is due to visit Beijing in early June for a further round of meetings.
Trump’s announcement comes as Republican lawmakers prepare for midterm elections in November that will determine whether the party retains its majority in both the House of Representatives and Senate.
“To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees,” Cody Lusk, president of the American International Automobile Dealers Association, said on Wednesday.
Trump has made protecting American manufacturing workers — and the iconic auto industry, in particular — a keystone of his administration. Wins in manufacturing states such as Michigan and Ohio were key to his victory in 2016.
The auto-import probe was panned by supporters of open trade.
“I fear that they’ve now crossed the Rubicon into wholesale protectionism,” said Rufus Yerxa, president of the National Foreign Trade Council, a trade policy group representing U.S. companies. “Lots of countries have resorted to protectionism when their economies were doing badly. It almost never works. But Trump may be the first leader ever to do it when the economy is booming. He’s trying to fix a problem that ain’t broke. The auto industry is healthy.”
The Commerce Department, which is leading the probe, said in a statement that automobile manufacturing “has long been a significant source of American technological innovation.”
The investigation will examine whether the decline of the U.S. automobile sector threatens to weaken the U.S. economy by reducing research and development, skilled jobs and more advanced manufacturing processes for things like electric and autonomous vehicles.
The department added it will publish a notice soon announcing a hearing date and inviting comment from businesses and the public. The process could last weeks or months before it would present its recommendation to the President, who gets the final say.
Some industry observers saw this latest move as a U.S. tactic to pressure Mexico and Canada to move quickly to agree to an overhaul of the North American Free Trade Agreement. Rules for regional content in cars have been one of the major sticking points in the Nafta discussions.
The U.S. levies a 2.5 percent duty on imported passenger cars and a 25 percent tariff on pickup trucks from countries that are not parties to free trade agreements with it.
Since the 2016 election campaign, Trump has repeatedly threatened to slap new tariffs on imported cars. But it may be tougher for the U.S. to make a national security case with a consumer product such as cars, than it did with steel and aluminum, two materials used in military equipment.
— With assistance by Isabel Reynolds, Connor Cislo, Sohee Kim, Miao Han, James Mayger, and Henry Hoenig
U.S. trading partners expressed alarm on Wednesday about threatened American tariffs on imported cars, which could hit allies hard and disrupt the industry around the world.
The Trump administration’s plan, which could involve tariffs of up to 25%, follows an earlier battle over steel tariffs and puts the U.S. on a collision course with three of its closest military allies—Japan, South Korea and Germany—all of which are major car exporters.
“If it comes into effect, it would cause very broad restrictions on trade and create disarray in global markets. It is very regrettable,” said Tokyo’s trade minister, Hiroshige Seko.
Toyota Motor Corp. closed down more than 3% in Tokyo trading, and fears of a trade war helped drive the overall Tokyo market 1.1% lower. In South Korea, which sends a third of its car exports to the U.S., Hyundai Motor Co.shares fell 3.5%.
Europe’s auto sector fell 1.5% Thursday morning, with shares of BMW AG BMW -2.98%down 2.6%, Volkswagen AG down 2.1% and Daimler AG DMLRY -2.38% down 2.4%. The German companies generate 17%, 15% and 25% of their revenue in the U.S., respectively, according to FactSet.
The Commerce Department said Wednesday that the Trump administration might use national-security laws to impose tariffs on car and auto-parts imports. President Donald Trump said on Twitter Wednesday, “There will be big news coming soon for our great American Autoworkers.”
The Trump administration recently reached a revised free-trade deal with South Korea and is negotiating with China on a broad range of trade issues, while planning to do the same with Japan. The threat of car tariffs could affect those talks, although it isn’t yet clear how.
Outside of Canada and Mexico, which have a free-trade agreement with the U.S., Japan is the biggest exporter of cars to the U.S. About 11% of light vehicles sold in the U.S. in 2017 were imported from Japan, according to the Center for Automotive Research, an Ann Arbor, Mich., think tank. The center said 56% of the vehicles sold in the U.S. were American-made, while Canada and Mexico accounted for an additional 22%.
To reduce political risk and respond more quickly to market demand, Japanese auto makers have invested billions of dollars since the 1980s increasing production in the U.S. But exports still account for a big percentage of sales at companies such as Toyota and Nissan Motor Co.
Mr. Trump, a critic of Japan’s trade practices for decades, has already put the U.S. ally in his crosshairs with a 25% tariff on steel. His administration gave temporary or permanent exemptions from that tariff to many allies, but not Japan, prompting a threat by Tokyo at the World Trade Organization to retaliate.
Collectively, Japan sent 1.7 million vehicles to the U.S. last year, and the figure is rising. One reason is American car buyers’ preference for sport-utility vehicles and trucks, which caught the Japanese makers unprepared. They have historically relied on sedan sales and produce most of those in the U.S., but they must rely on Japanese factories to meet the demand for SUVs.
Toyota’s most popular vehicle in the U.S. is the RAV4 SUV, which isn’t made at any of its U.S. factories. More than half are sent from Japan and the rest come from Canada. RAV4 sales are up 9% this year.
Nissan’s best-seller in the U.S. is the Rogue SUV. More than half of the Rogues sold in the U.S. are imported from Japan and South Korea.
Toyota and Nissan declined to comment on the threat of U.S. tariffs and referred to an industry group’s statement that the move, if carried out, would lead to fewer choices and higher prices for American consumers.
South Korean auto factories would also take a blow from tariffs—including some owned byGeneral Motors Co. About a quarter of the 519,000 vehicles made last year in South Korea by GM Korea were shipped to the U.S. If the Detroit auto giant were hit with Mr. Trump’s tariffs, “it would be such an absurd and nonsensical thing,” said Jung Yong-jin, an auto analyst at Seoul-based Shinhan Investment Corp. GM Korea officials weren’t immediately available for comment.
Chinese auto makers barely export to the U.S. at present, but the Trump administration’s proposed tariffs would affect investment plans years in the making.
Global auto makers are increasingly using China as a manufacturing hub. Ford Motor Co. is shifting its global production of the Focus compact car to China, with the expectation that many of those vehicles will be shipped to the U.S.
Chinese Foreign Ministry spokesman Lu Kang said the U.S. rationale for tariffs was unjustified. “We are opposed to the abuse of the national-security clause,” he said. “This will undermine the multilateral trading system.”
Volvo Car Group, which is Chinese-owned, also builds in China for global export. “U.S. tariffs going up would be very bad for us,” said Hakan Samuelsson, Volvo’s chief executive, in an interview earlier this month.
Mr. Samuelsson said it would be unfair to penalize a company like Volvo for selling Chinese-made cars in the U.S. because the company is also building a U.S. plant that will create 4,000 jobs in Charleston, S.C., with half of that facility’s production destined for export.
A tariff on auto parts would hit Chinese companies more directly. The U.S. imported parts valued at $17 billion last year from China, according to customs data—second only to Mexico. That means American consumers might have to pay more for their new cars even if they are U.S.-made because the parts inside would cost more, and replacing old parts could also get costlier.
The U.S. study of tariffs on cars and auto parts stands in contrast to China’s move to slash tariffs on the same items. Chinese tariffs on vehicles will fall to 15% from 25% starting July 1, while auto-parts tariffs will fall to 6% from between 8% and 25%, the government said Tuesday.
—Megumi Fujikawa in Tokyo, Kwanwoo Jun in Seoul, Yoko Kubota in Beijing and Riva Gold in London contributed to this article.