Witnesses at Hearing on Auto, Auto Parts Tariffs Nearly Unanimous Against Them

In more than 2,300 comments on the possibility of tariffs on imported autos and auto parts, only three support the idea, according to Jennifer Thomas, vice president of federal government affairs at the Alliance of Automobile Manufacturers. Thomas, who represents all companies with American plants, was one of 45 witnesses testifying at the Commerce Department July 19, as the department investigates whether an increase in auto parts imports impairs the economic security of the auto industry or the ability of the military to benefit from advanced technologies such as autonomous driving (see 1805240002).

Nearly every witness said that it's the tariffs, not imports, that imperil the domestic industry, because adding them would make American cars more expensive to build -- because supply chains cannot change quickly enough to respond and because the higher cost of cars would mean fewer people would buy them. Thomas said auto manufacturers appreciate that the administration wants to bolster their businesses, but said that modernizing NAFTA and reaching a free trade deal with the European Union would be more helpful than protection from imports.

Matt Blunt, president of the American Automotive Policy Council, used the word "counterproductive" to describe the investigation, as did several others. The AAPC represents the Big Three automakers. While the average tariff cost on all cars assembled and sold in the U.S. would be $2,270 if it's a 25 percent tariff on all imported auto parts, according to a new Center for Automotive Research study, General Motors, Ford and Fiat-Chrysler would have lower exposure than German, Japanese and South Korean automakers that assemble vehicles in the U.S. About 52 percent of cars and trucks sold in the U.S. are assembled in the country; about 29 percent are built by the Big Three. However, the way to really boost the fortunes of the Big Three is to exempt Mexico and Canada, he said. In that case, taxing vehicle parts and vehicles from outside NAFTA would increase the cost of cars built in North America by $1,135, but would increase imported cars' costs by $3,980.

The United Autoworkers, the only organization speaking in favor of some Commerce action, said the shift of parts work to Mexico and China has been used for leverage at the negotiating table to keep U.S. wages down. Jennifer Kelly, director of the UAW research department, said decades of offshoring by multinational corporations "has inflicted great harm on American workers and the economy." She said an investigation is long overdue. Kelly said 2.5 million vehicles were imported from Mexico last year, and if those factories had stayed in the U.S., that would have supported about 24,000 workers. "It's our hope that the Trump administration will take targeted measures," she told investigators. "We caution that any rash actions could have unintended consequences, including mass layoffs of U.S. workers. But that doesn't mean we should do nothing." Kelly declined to explain after her testimony what she considers an appropriately targeted measure or a rash action. She passed along the question to the UAW press department, which also did not comment.

Erik Autor, president of the National Association of Foreign-Trade Zones, said all indices -- employment, sale and stock prices -- show the U.S. auto sector is healthy and competitive. He said there could be terrible economic fallout from hiked tariffs "all to solve a non-existent problem." Autor said if tariffs are imposed, goods that undergo transformation inside a FTZ need to be treated as U.S. goods, as they are in the steel and aluminum case. He said that's not happening in the case of washing machines, solar panels and some items under Section 301 tariffs on Chinese imports.

Ann Wilson, senior vice president of the Motor & Equipment Manufacturers Association, represents companies that would be protected by a tariff on parts. She urged the department not to impose tariffs. Low-value parts such as wire harnesses have moved to Mexico and Asia, she acknowledged. But she said that Japanese automakers use parts from lower-wage countries in Asia, and the EU also uses parts from lower-wage countries. If the U.S. does not have access to lower-cost parts, its vehicles will not be cost competitive, she said.

Witnesses -- with the exception of Kelly from the UAW -- said the government's concerns are overblown about the U.S. missing out on the next stage of auto manufacturing because it doesn't have enough lithium-ion battery, sensor or semiconductor manufacturing.

Holger Engelmann, CEO of Webasto Roof Systems, said his company, which had specialized in sun roofs and convertibles, bought a U.S. company that makes electric vehicle chargers. He said America has strengths in both software and hardware development, which is necessary for autonomous vehicles. Engelmann said Webasto has been shifting more of its supply chain to the U.S., and has reduced its European inputs by 17 percent, its Chinese parts by 46 percent and its Canadian parts by 46 percent. Currently the parts made by its 1,800 workers contain 80 percent U.S. components. "Further localization is difficult," he said, either because the would-be suppliers are not cost-competitive or because they don't meet standards.

Joseph Boyle, senior director of business development for the U.S. subsidiary of South Korea's LG, said his company is opening a new plant to support the Chevy Bolt, and that plant will have 300 jobs. Traditionally, research and development was done in Korea, but as GM invests more in electrical vehicles, LG has been adding to its R&D in Michigan. And, he said, Ford and GM are bringing more expertise in house, as well. John Hall, a maintenance employee at a Hyundai plant in Montgomery, Alabama, since 2005 said 20 percent of his plant's vehicles are exported. "I am one of thousands of American workers whose job could be put at risk because of substantial tariffs," he said.