Auto Tariffs on the Table

https://www.reuters.com/article/us-usa-trade-autos/white-house-to-consider-commerce-department-auto-tariff-recommendations-officials-idUSKCN1NH2JP

There’s a lot in the above-linked article, reporting on the Trump administration’s consideration of tariffs on imported autos, that I can’t let pass without comment.  In short, the Commerce Department has submitted recommendations to the White House on whether and how to proceed with tariffs on imported autos and parts, based on its determination of whether auto imports pose a national security risk, something allowed under “Section 232” of the World Trade Organization rules.  The administration may hold off on implementation of tariffs, pending progress in talks with Europe and Japan aimed at restoring a balance of trade in autos and parts.

You may ask how auto imports pose a “national security risk.”  Good question.  I don’t know the administration’s rationale for it.  Imported cars themselves are surely not a risk.  It’s not as thought Toyota and VW and Honda and Mercedes and Hyundai and BMW have secretly planted bombs inside the cars.  The cars aren’t a risk.  However, what is definitely a national security risk is the enormous trade deficit in autos and parts.  There is no greater threat to the long-term viability of our economy than a big, sustained trade deficit that drives our budget deficit and national debt ever further out of control.  And we’ve now run a huge trade deficit for forty-three consecutive years.

The only mystery here is why the administration hasn’t acted already.  It’s becoming clear that the remaining globalists in Trump’s cabinet, like Larry Kudlow, Director of Trump’s Economic Council, and John Kelly, Trump’s Chief of Staff, have the upper hand over trade hawks like Trump’s trade advisor, Peter Navarro.  As a result, Trump is being sucked into the kind of endless “trade negotiations” that have paralyzed U.S. trade policy for decades.

But having the Commerce report ready for action would underscore a consistent threat from President Donald Trump – that he would impose tariffs on autos and auto parts unless the EU and Japan make trade concessions including lowering the EU’s 10 percent tariff on imported vehicles and cutting non-tariff barriers.

… Last month, the administration said it would open formal trade talks with the EU and Japan in early 2019 after the 90-day required congressional notification period ends.

Such talks are a complete waste of time.  Lowering barriers in the EU and Japan will make absolutely no difference in the trade deficit.  Europeans and Japanese don’t buy imported American cars because their countries are so crowded that their per capita consumption of vehicles is a fraction of that of Americans.  They don’t buy them because there’s no place to park cars and their roads are so crowded that they can’t make practical use of cars.  The only way to achieve a balance of trade in autos and parts is to keep their imports out.  Tariffs are the most effective method of doing that.

Of course, stories such as this are never complete until the free trade advocates have their chance to scare you with dire predictions.

The Alliance of Automobile Manufacturers, whose members include General Motors Co (GM.N), Volkswagen AG (VOWG_p.DE) and Toyota Motor Corp (7203.T), warned the price of an imported car would increase nearly $6,000, while the price of a U.S.-built car would increase by $2,000.

A study released by a U.S. auto dealer group warned the tariffs could cut U.S. auto sales by 2 million vehicles annually and cost more than 117,000 auto dealer jobs, or about 10 percent of the workforce.

If the price of imports goes up by $6,000 while the price of domestically-manufactured cars goes up by only $2,000, which are you more likely to buy?  The answer is obvious, but the above-mentioned groups only want you to focus on the fact that the cost of all autos will increase.  They want you to think that you won’t be able to afford a car any more.  They hope that you’re too dumb to realize that shifting manufacturing back to the U.S. will create hundreds of thousands of new jobs and will drive a demand for labor that will also drive wages higher – more than enough to offset any price increase.  U.S. auto sales won’t fall by 2 million vehicles annually.  They’ll actually increase as rising wages make cars more affordable.  And regarding the loss of auto dealer jobs (117,000 estimated in the article), you can bet that dealer jobs will be lost at the imports’ dealers if the foreign companies aren’t smart enough to begin building their cars in the U.S., but those folks will quickly find new work at GM, Ford and Chrysler.

Trump is wasting precious time by dithering with these worthless “trade negotiations.”  He needs to implement tariffs now and make them big enough – at least 25% – to have the desired effect, which is driving manufacturing back to the U.S.  Before the next elections in two years, Americans need to see tangible results in the form of a falling trade deficit and rising wages, or the globalists will surely regain the upper hand.

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