Senators Say Tariff Chaos Causing Pain for American Workers

Usually tariff issues are taken up in the Senate Finance Committee, but the Senate Labor Committee examined recent trade policies during a Sept. 5 hearing. Labor ranking member Patty Murray, D-Wash., noted the committee has an interest because of the effect on workers. "[President Donald] Trump is playing a dangerous game right now, and workers are paying the price," she said.

Murray, Chairman Lamar Alexander, R-Tenn.,and more than a half-dozen other senators asked a diverse set of witnesses to evaluate how tariffs, especially Section 232 tariffs, could impact the nation's auto industry. The Sept. 5 panel included the head of the trade group that represents foreign auto manufacturers -- 14 of which have U.S. assembly operations -- the former AFL-CIO policy director; a Trump campaign economic adviser; and a free trade advocate from the National Taxpayers Union.

Stephen Moore, the former Trump campaign adviser, treaded carefully, agreeing that Trump is playing a dangerous game but also suggesting that he's getting results with Mexico and South Korea, and may win significant concessions from China. "I was also skeptical of that [tariff] approach," he told the senators, but said he's less so now. At another point, he acknowledged the administration's trade policy "lacks a coherence," but immediately added, "I think we're going to see some greatly improved trade deals over the next six months."

Still, Moore said he's opposed to tariffs on autos and auto parts, both because the auto industry is healthy and because protectionism backfires, he says. "We tried that approach in the 1970s," he said. "When you gave American industry a cloak of protection of 20, 30 percent, they became fat and flabby and inefficient."

Thea Lee, the former AFL-CIO leader and current president of the Economic Policy Institute, was the only voice on the panel that supports steel and aluminum tariffs, though she questioned how they've been applied. "Prices do rise, they're meant to rise," she said of what happens after tariffs are implemented. "Tariffs are designed to change behavior, and to disrupt."

Sen. Tim Scott, R-S.C., raised the point that businesses could decide not to expand or open plants in North America because of threatened tariffs, even if they never come. Association of Global Automakers CEO John Bozzella said business decisions are already being changed, and noted that the Spartanburg, S.C., BMW plant had been exporting 80,000 vehicles a year to China. In July, BMW announced it is increasing production in China because retaliatory tariffs of 40 percent meant it had to raise prices on vehicles exported to China from America. But even Scott expressed support for some of Trump's approach, saying, "I think we're in a better position in NAFTA than we would've been without the unorthodox approach."

Bozzella, in an interview after the panel, said his members can't judge whether the stricter NAFTA rules of origin are beneficial, harmful or neutral until they see the text. The top-line 75 percent rule of origin, up from 62.5 percent, is part of a complex set of standards, each of which must be meant to avoid tariffs if a vehicle is assembled in Mexico or Canada. The rules of origin also address North American content in a group of high-value parts, such as engines, batteries and power trains; chassis-related parts; steel and aluminum and glass; third tier components; and a wage quota.

He said companies will be asking: "What adjustments do I have to make to my supply chain?" He also said there's a question of whether increasing production in the higher-wage countries in NAFTA will make North American cars less cost-competitive with Asian or European cars.

Although German and Japanese automakers produce SUVs and pickup trucks in the U.S., Bozzella said his members do not want to keep the long-standing 25 percent tariffs on light trucks. "Our view is we should aspire to zero," he said. The European Union has offered to drop its auto tariffs to zero if the U.S. would do so on both trucks and cars. Trump has said that's not enough, because European consumers would not necessarily start buying more American models.