Auto companies have warned that erecting barriers to trade could be devastating for what is a highly globalized industry, in which cars and their parts are manufactured and shipped around the world.
WASHINGTON — Richard Smallwood describes himself as a “pretty far right-wing conservative” and a longtime supporter of President Donald Trump. But like many in the auto industry, Smallwood, the president of the tire company Sumitomo Rubber North America, has been puzzled and dismayed by the president’s proposal to impose tariffs on foreign automobiles and their parts.
“He’s the president of the United States, and I just sell tires,” said Smallwood, whose company imports tires from abroad. “I have to be careful about second-guessing him, but I wish it were a more logical approach.”
On Thursday, Smallwood appeared at a government hearing on the sweeping tariffs the administration is now considering, along with other suppliers, and representatives from car companies and foreign countries. Unlike the previous hearing on the administration’s metals tariffs, which drew some support, the testimony of those who appeared on Thursday was almost uniformly negative and punctuated with concerns about how tariffs would raise their costs, stifle innovation and dampen their plans for expansion and hiring.
“Every aspect of the U.S. automotive value chain is united in its concern on this issue,” said John Bozella, the chief executive of Global Automakers, which represents international car companies. “You cannot find a company that has asked for this protection.”
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Whether Trump listens will be a big test of whether his protectionist instincts will prevail over the concerns of an industry he has continually vowed to protect.
Labor unions have been more supportive of the Trump administration’s efforts, though they have warned about the potential harm of disrupting global supply chains and urged Trump to proceed carefully.
In testimony on Thursday morning, Jennifer Kelly, the director of research at the United Automobile Workers union, said that American workers had been harmed by decades of offshoring, and that a comprehensive investigation into the effect of foreign production on domestic manufacturing was “long overdue.”
“We caution that any rash actions could have unforeseen consequences, including mass layoffs of American workers,” Kelly said, adding “but that doesn’t mean we should do nothing.”
In May, the Commerce Department said it would investigate whether auto imports threaten U.S. national security, by reducing domestic research and development in cutting-edge technologies. The investigation is just one of many trade measures the administration has taken as it tries to revive U.S. manufacturing, a key campaign promise by Trump. The administration has already imposed tariffs on steel and aluminum and, on Wednesday, said it would begin another security-related investigation into uranium.
But the potential size of the auto tariffs would dwarf those other measures. While the Trump administration has imposed tariffs on around $48 billion of steel and aluminum imports, the new tariffs could be levied on up to $351 billion of automobile and auto part imports.
Trump himself has threatened levies of 20 to 25 percent on foreign cars and implied that such penalties could help the United States negotiate better terms for trade with Mexico, Canada and the European Union. He and other administration officials say the U.S. is at a disadvantage and that better trade deals could ultimately add U.S. jobs.
Yet auto companies have warned that erecting barriers to trade could be devastating for what is a highly globalized industry, in which cars and their parts are manufactured and shipped around the world.
Even cars with the highest percentages of American-made content regularly source a quarter to a third of their parts from abroad, industry statistics show. Last year, 52 percent of cars sold in the United States were manufactured inside the country, with nearly half of those made by international firms like BMW, Daimler and Honda, according to the Center for Automotive Research, a nonprofit research firm.
“We would argue that the supply chain allows us to remain competitive in this global market,” Jennifer Thomas, the vice president of federal government affairs at the Alliance of Automobile Manufacturers, which represents Ford, General Motors, Toyota and other global automakers, said at the hearing Thursday morning.
A study released Thursday by the Center for Automotive Research estimated that tariffs or quotas could cause the price of an average new vehicle sold in the United States to rise by $980 to $4,400, depending on the specifics of the policy.
A decision on whether to impose the tariffs could come at any time. The Commerce Department has 270 days from when it initiated the investigation in late May to complete it, and the president will have 90 more days to decide what to do.