Overview
On the evening of May 23, Commerce Secretary Wilbur Ross announced that he would initiate a Section 232 investigation into the national security implications of automobile imports. According to a statement issued by the Department of Commerce (DOC), the investigation will “determine whether imports of automobiles, including SUVs, vans, light trucks, and automotive parts into the United States threaten to impair the national security.” This investigation was initiated by the DOC at President Trump’s direction; shortly before Secretary Ross’ announcement, President Trump stated he “met with Secretary of Commerce Wilbur Ross to discuss the current state of our automobile industry” and “instructed Secretary Ross to consider initiating a Section 232 investigation.” It has been reported that President Trump has asked for additional tariffs of as much as 25% on automobile imports, though this is not reflected in any official documents.
In initiating the investigation, Secretary Ross stated there was “evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.” The DOC statement added that “during the past 20 years, imports of passenger vehicles have grown from 32% of cars sold in the United States to 48%…Now, American-owned vehicle manufacturers in the United States account for only 20% of global research and development in the automobile sector, and American auto part manufacturers account for only seven percent in that industry.”
President Trump has previously signaled his intention to impose such tariffs against automotive imports. During a meeting with executives of the world’s biggest auto makers two weeks ago, President Trump suggested imposing a 20% tariff on vehicles brought into the United States and also subjecting imports to tougher emissions standards than domestic vehicles. The President’s motivation in launching this investigation may be tied to other trade developments, including moving the NAFTA negotiations forward.
Under Section 232, the President has broad authority to impose trade remedies, including tariffs and quotas, on imports on a global basis. Therefore, the Section 232 autos investigation has the potential to seriously disrupt trade. Initial reactions from Republican lawmakers and US trading partners have been negative.
Background on 232 Investigations
Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to investigate whether imports of any article threaten to impair the national security of the United States. The Trump Administration has already conducted 232 investigations into steel and aluminum imports. This investigation resulted in the imposition of 25% tariff ad valorem on steel and 10% ad valorem on aluminum imports into the United States from all countries (as of March 23, 2018), with the exception of a few countries as to which the Trump Administration is negotiating country-wide exemptions from tariffs. The DOC is also reviewing company requests for exclusions of individual products. Prior to the current Administration, Section 232 investigations were rare, with the last one having been conducted in 2001.
Given the national security focus of Section 232 investigations, the DOC is tasked with considering, among other factors, the domestic production needed for projected national defense requirements as well as the capacity of domestic industries to meet such requirements. During an interview with CNBC on May 24, Secretary Ross offered a more expansive definition of national security, stating “[n]ational security is broadly defined to include the economy, to include the impact on employment, to include a very big variety of things that one would not normally associate directly with military security…Economic security is military security. And without economic security, you can't have military security.” This position is in line with the DOC’s determinations in the Section 232 investigations against steel and aluminum, both of which rested in part on the imports’ effects on the “economic welfare of individual domestic industries.”
The Secretary of Commerce has 270 days to conduct an investigation and present the DOC’s findings and recommendations to the President. If the Secretary finds that an import threatens to impair US national security, the President shall determine whether he agrees with those findings within 90 days. If so, he must determine what, if any, action to implement to “adjust” the imports of the article in question so that they will not threaten to impair national security. As demonstrated by the Section 232 investigations on steel and aluminum, the President has broad power to impose trade remedies.
Initial International Reaction
US trading partners immediately responded to the announcement. Japan’s trade minister, Hiroshige Seko, said such measures “would be an extremely far-reaching trade sanction that would put the global market into turmoil.” He added, “We are extremely concerned.”
China’s Ministry of Commerce, Gao Feng, told reporters at a news conference that “China opposes the abuse of national security clauses, which will seriously damage multilateral trade systems and disrupt normal international trade order.” He stated they will “closely monitor the situation under the US probe and fully evaluate the possible impact and resolutely defend our own legitimate interests.”
Canadian Prime Minister Justin Trudeau stated that the auto 232 investigation seems to be on “even flimsier logical grounds” than the steel and aluminum 232 cases, further indicating that “this is very much linked to ongoing negotiations around moving forward on NAFTA.”
The EU Trade Commissioner, Cecilia Malmström, indicated that the Section 232 investigation would be “against WTO rules.”
Next Steps for Affected Companies
The DOC is expected to hold a public hearing and invite comments from the automotive industry and other stakeholders, the date of which will be announced “shortly” in the Federal Register.
Similar to the Section 232 proceedings against steel and aluminum, the remedy, if any, to be applied is entirely up to the discretion of the President. As a result, parties with interest in the outcome of this investigation, such as companies and trade associations, should consider their strategy as early as possible, including working with allies, congressional and otherwise. Potentially affected parties should make sure the Trump Administration, especially the DOC and the White House, are aware of their views and concerns. This may include preparing comments for submission to the DOC or participating in the anticipated public hearing.
