Commerce Secretary Wilbur Ross has completed the section 232 investigation on the auto industry, reviewing the sector as a vital economic interest for continued national security.
The content of the investigative finding is unknown. The Commerce Department has privately delivered the 232 report directly to the White House. However, with the possibility of the report empowering President Trump to implement 20 to 25% import auto tariffs industry executives are proactively going bananas.
An important aspect here is that the USMCA (U.S., Mexico and Canada) agreement exempts the trilateral North American pact from any auto tariff fear. If the vehicle consists of 75% North American (USMCA) content, there’s no tariff.
At the 30,000 ft level, the USMCA deal positioned the U.S. and Mexico to retain their current multinational investments; and through a series of sector-by-sector standards on origination the deal simultaneously closed the fatal NAFTA loophole.
The USMCA agreement makes an economic manufacturing partnership between the U.S, Mexico and Canada; and for assembly products third parties will have to produce parts and origination material within the U.S. and Mexico.
U.S.T.R. Lighthizer put some details forward: ♦The NAFTA Loophole closure is explained in Summary Form HERE; with emphasis on the Auto-Sector. The key is a 75% part origination level for auto-assembly; and a 40-45% level for parts with a minimum $16/hr wage rate. The source-origination rate (75%) is even higher than all previously forecast USMCA negotiation predictions.
Example of downstream consequences/benefits: German auto-maker BMW recently built a $2 billion assembly plant in Mexico (almost complete). Most of their core parts were coming from the EU (steel/aluminum casting components) and/or Asia (electronics). Now the assembly plant will have to source 75% of the auto-parts from the U.S. and Mexico, with 45% of those parts from facilities paying $16/hr.
As a direct result of the USMCA agreement BMW made an announcement in November they were exploring additional parts manufacturing facilities within the U.S. for their engines and transmissions. BMW needs to modify their supply chain and build auto parts in the U.S. and Mexico:
LOS ANGELES (Reuters) – BMW (BMWG.DE) is considering a second U.S. manufacturing plant that could produce engines and transmissions, Chief Executive Harald Krueger said on Tuesday, shortly after a report that U.S. President Donald Trump would impose tariffs on imported cars from next week
Additionally, with the KORUS (Korean-U.S.) bilateral trade deal now cemented there would be no impact to South Korean auto imports (Kia etc) from a 232 decision. However, any EU, China or Japanese automaker who is not currently inside U.S.M.C.A operations could be subject to an application of a countervailing duty.
Specifically because of the scale of the industry, German Chancellor Angela Merkel is the most at risk from a lack of an overall U.S-EU trade deal. This potential 232 auto tariff is a big stick to get the EU to the bargaining table.
WASHINGTON (Reuters) – The U.S. Commerce Department sent a report on Sunday to U.S. President Donald Trump that could unleash steep tariffs on imported cars and auto parts, provoking a sharp backlash from the industry even before it is unveiled, the agency confirmed.
Late on Sunday, a department spokeswoman said it would not disclose any details of the “Section 232” national security report submitted to Trump by Commerce Secretary Wilbur Ross. The disclosure of the submission came less than two hours before the end of a 270-day deadline.
Trump has 90 days to decide whether to act upon the recommendations, which auto industry officials expect to include at least some tariffs on fully assembled vehicles or on technologies and components related to electric, automated, connected and shared vehicles. (read more)
Don’t forget there’s already an existing 25% tariff on imported trucks and SUV’s, that’s why most foreign automakers opened truck and SUV auto-plants in the U.S. over the past two decades. BMW builds their SUV’s in South Carolina. Volkswagen builds SUV’s in Tennessee. Mercedes now builds their SUV’s in Alabama, and Toyota builds in Princeton Indiana as well as Canada. Volvo has also moved all their SUV building to South Carolina.
It is doubtful President Trump will actually pull-the-trigger on tariffs for cars; however, as said, his ability to do it is a massive stick to get both the EU and Japan to commit to a renegotiated bilateral trade agreement.
Centinel2012 