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Trade War

Japan, Canada and EU join auto industry condemnation of tariffs

Ambassadors warn of retaliation at US hearing

Rep. Jackie Walorski of the Republican Party, center, flanked by John Bozzella, president of Global Automakers, left, joins American workers of international auto companies to demonstrate against trade tariffs in Washington on July 19.   © AP

WASHINGTON/PALO ALTO, U.S. -- Japan, Canada and the European Union on Thursday warned U.S. officials of the repercussions if Washington makes good on its car tariff threats, joining the backlash from American and international business.

Kazutoshi Aikawa, minister extraordinary and plenipotentiary at the Japanese Embassy in Washington, expressed his country's objection to import restrictions at a public hearing, arguing that imports from Japan are not hurting the U.S. auto industry.

Aikawa stressed that Japanese automakers are large-scale employers in the U.S. and play an important role in supporting the growth of the country's manufacturing sector. He also pointed out that, since January 2017, Japanese companies have announced plans for investments that would create at least 28,000 jobs.

The U.S. Commerce Department is considering import restrictions on foreign autos on the grounds that they pose a threat to national security. But Aikawa rebutted the argument, saying auto imports from Japan pose no present or future threat to the U.S. He also warned that the tariffs could hinder investment in the country.

At the same hearing, Canadian Deputy Ambassador Kirsten Hillman said that Ottawa would "respond in a proportional manner" to any tariffs. The EU's ambassador, David O'Sullivan, warned of countermeasures on U.S. exports possibly reaching $294 billion. In Brussels, European Trade Commissioner Cecilia Malmstrom said that EU car and car parts exports to the U.S. exceed 50 billion euros ($58.2 billion) a year and that the EU and member states are creating a list of rebalancing tariffs in case Washington follows through on threatened tariffs on the EU goods.

"We are carefully analyzing all of the information that you are providing and that our analysts are gathering from other sources," Commerce Secretary Wilbur Ross said at the start of the hearing. "We are looking at every comment that has been filed." But with President Donald Trump apparently set on tariffs already, whether the comments will make any difference is unclear.

Raising tariffs on automobiles "will result in a net loss of American jobs," said Matt Blunt, president of the American Automotive Policy Council, which represents Ford Motor, General Motors and Fiat Chrysler Automobiles unit FCA US.

The three build about 80% of their U.S.-market autos in America, assembling others in Mexico, Canada, China or elsewhere. Hiking tariffs by 25% could add $5,800 to the average cost of such imported vehicles, the AAPC estimates.

American companies exporting parts to Mexico and other trading partners would also feel the pain. The U.S. could lose 195,000 jobs, or 624,000 if other countries retaliate against the tariffs, the council warns.

Workers assemble cars at a Canadian plant for U.S. automaker Fiat Chrysler. Many cars for the American market are built in neighbors Canada and Mexico. Workers assemble cars at a Canadian plant for U.S. automaker Fiat Chrysler. Many cars for the American market are built in neighbors Canada and Mexico.   © Reuters

Tariffs on imported parts would also hit vehicles assembled in the U.S. For an American-built car or light truck with 35% imported content, a 25% tariff would raise the average cost by $2,000, according to the AAPC's estimates, increasing the tax burden on U.S. industry and consumers by $35 billion a year for parts.

Japan, whose auto sector is closely linked to that of the U.S., was represented at the hearing by parties including the Keidanren business lobby. Toyota Motor said recently that 25% tariffs would add $1,800 to the cost of its popular Camry sedan.

The Japan Automobile Manufacturers Association's representative said at the hearing that Japanese automakers have raised U.S. production tenfold while shrinking exports to the country by half amid increasing American investment since the mid-1980s. "Japanese-brand automakers support more than 1.5 million U.S. jobs" when spinoff and intermediate jobs are accounted for, it said in previous comments.

Japanese automakers use provisions of the North American Free Trade Agreement to export cars built in Mexico and Canada to the U.S. tariff-free.

Mexican Ambassador Geronimo Gutierrez Fernandez criticized the threatened tariffs, saying at the hearing that integration has made the American automotive industry more competitive on the world stage. American parts constitute more than 70% of those Mexico sources from abroad for Mexican-built cars for the U.S. market, according to his government.

U.S. Commerce Secretary Wilbur Ross testifies before a Senate Finance hearing in Washington in June.   © Reuters

The Trump administration has also ordered automakers to report by mid-August on what parts they procure from where and in what quantities, citing national security reasons.

Automakers have avoided commenting on that request. But a source affiliated with the industry notes that the Commerce Department is requesting a massive amount of data, much of which amounts to corporate secrets.

United Auto Workers Research Director Jennifer Kelly expressed support for "targeted measures to boost domestic manufacturing." Growth in auto imports has cut into pay for U.S. auto-sector workers, with wage negotiations held hostage to the threat of moving work to low-wage countries like Mexico and China, she said at the hearing.

Separately, the United Steelworkers has requested that Canada be exempted from import limits and attacked such exporters as Germany and Japan.

How Washington will respond to the near-singular opposition to its plan remains to be seen. GM has warned that tariffs could lead to "less investment, fewer jobs, and lower wages for our employees." Ford refrained from commenting for itself, possibly in order to avoid drawing Trump's ire.

The Commerce Department is due to report on the matter as soon as next month, but Trump has already threatened to slap 20% tariffs on European cars.

"I would like to think they are conducting an independent, fact-based inquiry, but if the president demands a particular result, I don't know what will happen," said William Reinsch, a former Commerce Department official now with the Center for Strategic and International Studies.

In Wednesday's Beige Book economic report, the Federal Reserve reported that manufacturers in all districts "expressed concern about tariffs."

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