Wednesday, December 26, 2018

Merry Christmas: All Auto Tariff Options Still on Table

President Donald Trump has “a lot of flexibility” in deciding whether and how to impose automotive tariffs, says Commerce Secretary Wilbur Ross.

The commerce department is finalizing a report, due by February 17, on whether imported cars and car parts represent "a threat to US national security." Trump will then have 90 days to take action.

In a telephone interview with the Financial Times, Ross said the report was still a “work in progress” but the US was intent on correcting a trade imbalance in cars that was a relic of the postwar years.

The president had “a lot of flexibility” and “complete discretion” in making a final decision in response to the report, he said.

“The whole purpose of the president’s tariffs is to create a situation where it is more painful for other countries to continue their predatory practices than to reduce them, it’s the only tool we have,” he said.

The concern among German carmakers, as FT notes, became so acute that they visited the White House this month to emphasize their investments and contributions to the US economy. EU officials have already vowed to retaliate if Trump imposes the car levies.

It is unclear what the unpredictable Trump will do.

FT indicates there is some speculation that Trump may become even more aggressive than the Ross report recommends. On the other hand, opposition to such tariffs is strong even here in the US.

FT writes:
[T]here are few if any domestic constituencies that are heavily in favour of the car tariffs, with US carmakers voicing their opposition and the United Auto Workers union treading cautiously.
The UAW fears auto tariffs would hit US workers of foreign car companies, and possibly domestic car companies if the EU responds with retaliatory tariffs.

One ironic note, Ross told FT that "concessions" to European automakers are "a relic of the postwar years," but the Trump-Ross mercantilist view, that a trade deficit is bad, is a relic of the 17th century and early 18th-century mercantilist thinking, long ago abandoned by most economists.


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