Tariffs increasing headwinds for US auto sector, says expert

Reducing tariff barriers and creating more market access opportunities will help the US auto industry to offset headwinds from global trade uncertainties, an industry official said.

Speaking at the "US Automotive Industry Needs Free Trade" discussion at The Heritage Foundation on Tuesday, John Bozzella, president and CEO of Association of Global Automakers, said the "misapplied 232 tariffs" are driving up costs for the industry, while uncertainties in the current trade policy are causing headwinds for the sector, whose future lies in exports.

The US has maintained an auto trade surplus with China, said Bozzella. "In 2017, the US exported nearly 260,000 cars and trucks to China. We export way more cars built here in America by Americans to China than we import from China," he said.

That trade could change as a result of the tariffs imposed under the US Section 301 investigation on Chinese imports, which is affecting the auto industry on both sides, Bozzella said.

"There are consequences to the current strategy if we can't resolve the trading issues. And we could see a significant impact in states like South Carolina and Alabama, which are export engines of vehicles from the United States to China," he said.

In April 2017, on the basis of Section 232 of the Trade Expansion Act of 1962, the US initiated investigations against steel and aluminum products from numerous countries, including Mexico, Canada and China.

In March, the US decided to impose a 25 percent tariff on imported steel and a 10 percent tariff on aluminum imports from most countries.

"Tariffs on steel and aluminum as a result of the Section 232 investigation have already increased the cost of auto production in the United States, making it less competitive," Bozzella said, adding that it would push up vehicle prices. "We are seeing the challenges of misapplied 232 tariffs and their impact on the auto industry."

Three years ago, the Washington-based association, which represents the US operations of international automakers and suppliers, launched "Here for America", a project that highlighted how the auto industry in the country had benefited from open investment policies, reduced trade barriers and exports.

However, "in today's environment of high tariffs and managed and centrally-planned trade, that original mission seems kind of quaint", said Bozzella.

He suggested that the US Congress needs to "take a serious look at aspects like whether (Section) 232 is appropriately applied in the case of steel and aluminum, and especially in the case of autos".

James Hackett, CEO of Ford Motor Co, said last month at a conference in New York that US steel and aluminum tariffs would cost the automaker $1 billion in 2018 and 2019.

China's move to increase tariffs to 40 percent, after the US imposed 25 percent tariffs on Chinese-built vehicles entering the country, will hurt Ford's exports to that country, said Joe Hinrichs, executive vice-president and president of global operations for the US automaker.

Bozzella mentioned that electric carmaker Tesla Inc, facing massive tariffs on vehicles built in California to be exported to China, has taken a decision to build a manufacturing plant in Shanghai.