Under the direction of President Trump, U.S. Secretary of Commerce, Wilbur Ross has initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended. “The investigation will determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security as defined in Section 232.”
What are the Section 232 Investigations?
An investigation under Section 232 “is to determine the effect of imports on national security” and they may be initiated either through a request from the head of any department/agency, application from an interested party or the Secretary of Commerce can self-initiate an investigation. After the investigation is initiated, then the U.S. Secretary of Commerce must prepare a report within 270 days of initiation about “whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security”. The President can either agree or not with the Secretary’s suggestions within the report, and can then take action to “adjust the imports of an article and its derivatives”.
Why President Trump Wants to Initiate New Tariffs on Imported Vehicles:
According to Secretary Ross, “there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry”, and because of this the Department of Commerce will conduct an investigation into “whether such imports are weakening our internal economy and may impair the national security”. The investigation will include the reduction in research, development, and “jobs for skilled workers in connected vehicle systems, autonomous vehicles, fuel cells, electric motors and storage, advanced manufacturing processes, and other cutting-edge technologies”. The Department of Commerce states that imports of passenger vehicles have “grown from 32 percent of cars sold in the U.S. to 48 percent” and “employment in motor vehicle production declined by 22 percent” in the past 20 years.
President Trump as of right now is seeking for “new tariffs as much as 25% on automobile imports” and is expected to invite public comment and hold a hearing on the issue. According to the World Trade Organization (WTO), under the WTO agreements, “the U.S. currently charges tariffs – essentially a tax at the border – of 2.5% on light cars and 25% on trucks coming from countries where the U.S. doesn’t have a trade pact”. Due to these agreements, President Trump has consistently criticized the low car tariffs and has threatened to raise U.S. tariffs to level of other countries.
What could be the potential outcome of a 25% tariff on imported vehicles and parts?
According to economists, a 25 percent tariff on imported vehicles and parts would have a negative economic effect on net U.S. jobs and the U.S. economy. Assuming the tariff is only in place for a short period (1-3 years), there would be “a very small positive impact on high skilled jobs”, which only account for 19 percent of the total amount of jobs that would be affected by this potential tariff.
There will however be a very large negative impact on workers, both high and low skilled. It is estimated that 157,300 net jobs will be lost, including 45,450 manufacturing jobs. For every three jobs that will be lost only one job will be gained. The Gross Domestic Product (GDP) will also see a decline, with the U.S. losing close to 18 billion dollars and U.S. exports dropping two percent annually. The tariff will also cause the price imported foreign vehicles to increase an extra $6,400 on a $30,000 vehicle and also cause domestic vehicles with foreign parts to increase in price.
Even after all of these probable outcomes, it is still not known what type of retaliatory actions other countries will take against the U.S. for imposing the potential 25 percent tariff. What is known is that this will not help U.S. jobs or the economy.
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