Allies Question Wisdom of Tariffs on Imported Autos, Auto Parts

Countries that export billions of dollars' worth of autos and auto parts into the U.S. will punch back if tariffs are imposed on their products, top officials from Europe and Canada warned. And Mexico, which has one of the largest trade deficits in the automotive sector, reminded the U.S. government panel hearing testimony that its law enforcement cooperation with the U.S. countering narcotraffickers is invaluable. "A strong and successful United States is in the interest of Mexico no less than a strong and successful Mexico is in the interest of the United States," said Mexican Ambassador Geronimo Gutierrez Fernandez.

Allies, foreign trade groups and some auto parts companies testified in the afternoon at the daylong hearing at the Commerce Department July 19 on whether the imports of autos and auto parts are imperiling the country. Nazak Nikakhtar, assistant secretary of Commerce for industry and analysis, said at the close of the day that the government will really carefully analyze all the information provided, and in the coming weeks conduct a "thorough, fair and transparent investigation."

Some have their doubts. "This current investigation lacks legitimacy and factual basis and would lead the United States into a breach of international law," European Commission Ambassador David O'Sullivan told the panel. "The EU reiterates its firm opposition to the proliferation of measures taken on supposed national security grounds for the purposes of economic protection. The notion that imports of autos and auto parts from your closest allies could threaten U.S. national security is, bluntly speaking, absurd." He said countermeasures could cover $294 billion in U.S. exports to the EU.

Canada's Deputy Ambassador Kirsten Hillman noted that Canada is by law part of the U.S. defense industrial base, and, she said, "on this basis alone, this panel most conclude" that Canada cannot be a national security threat. She said that if tariffs on autos are levied, "Canada will be forced to respond in a proportional manner."

Representatives from the top sources of imported autos -- Japan, Europe, Mexico and Canada -- all talked about their countries' contributions to the U.S. auto industry. The Mexican ambassador noted that 38 percent of the value in Mexican-assembled vehicles sold in the U.S. comes from U.S. parts. The EU noted that about 60 percent of the cars its automakers build in America are exported. Japanese Deputy Chief of Mission Kazutoshi Aikawa said at least 28,000 jobs will be created as a result of expansions underway by Japanese automotive companies in the U.S. -- but if tariffs are levied, that would put those investments in doubt.

The government panel didn't ask any questions of foreign government or business officials, but did ask executives at auto parts plants their views of the state of the industry. The president of the Peterson Institute for International Economics called the hearing "a show trial” in an interview with The Wall Street Journal.

The panel questioned Michael Davidson's assertion that importing components isn't "displacing domestic production in any meaningful way," and that doing so "supports more complex and innovative manufacturing in the United States." Davidson is chief operating officer of JTEKT North America, which employs 6,000 people in 14 domestic auto parts factories.

One official asked: "Are we at risk at having the supply chains for high-tech, high-value products being established outside the U.S.?"

MAHLE Industries, a German company that employs more than 6,000 in the U.S., said that while U.S. production starts with German suppliers, over time, they find local companies that can do the job. Chris Heineman, senior director of purchasing, noted that many of the questions in the morning focused on the electronics suppliers needed for autonomous cars and electric vehicles. "From my judgment, we do have electronics suppliers in the U.S.," he said, but not enough to satisfy MAHLE's needs in its product line. "The question is maybe why is there not more? The tariffs are sort of a penalty; if the concern is electronics, how do you incentivize more electronics production in the U.S.?"