Driving down costs for car buyers was a stated rationale of the Trump administration’s decision last week to lower Obama-era fuel economy standards and challenge California’s ability to set its own vehicle emission limits.
But as the White House advocates for fewer environmental mandates, it is still mulling new automobile tariffs that could add to the price of new cars and trucks, negating whatever savings consumers realize from relaxed fuel efficiency standards.
“I want to highlight the contradiction,” said Jennifer Thomas, vice president for federal government affairs at the Alliance of Automobile Manufacturers. “Any savings that consumers might be seeing in the future as a result of their actions on fuel economy might be wiped out if we continue down the path we are currently on.”
The Trump administration unveiled its proposed rollback of fuel efficiency standards last week, as the Commerce Department weighs a plan to impose 25 percent tariffs on foreign-made auto parts and imported cars. The auto industry has started highlighting the disconnect between the two policies as it lobbies the White House and Commerce Department, which could announce a decision on whether to impose the tariffs on autos and auto parts within weeks.
On the campaign trail, President Donald Trump said he would slap 20 percent to 25 percent tariffs on such foreign-made vehicles and auto parts, part of his pitch to Detroit auto workers, who helped him defeat Hillary Clinton in Michigan in 2016. He’s now pushing Commerce to deliver on that promise.
But all cars made in the United States, whether manufactured by U.S. companies or foreign firms with plants here, rely on imported automobile parts. Tariffs will add about $2,000 to the cost of a typical U.S.-made car and $6,000 to an imported one, according to an analysis by the American Automotive Policy Council, a research arm of General Motors, Ford and Fiat Chrysler Automobiles.
Toyota says the price increase would be even higher — an extra $2,800 to $3,000 for its Tundra full-size pickup and Sienna minivan, both assembled in the United States.
“The cost increase would be significant,” said Thomas, speaking to journalists Friday at a National Press Foundation event. “You’re putting new cars out of reach of most American families.”
Following a May meeting with the president, Commerce Secretary Wilbur Ross announced he had launched an investigation into imports of cars, trucks and automobile parts using a little-known provision in U.S. trade law, Section 232. The section is aimed at protecting U.S. national security interests. The administration also deployed Section 232 to place tariffs on imported steel and aluminum.
Commerce held a July 19 hearing on the possibility of 25 percent tariffs on imported vehicles and auto parts, which have an annual value of roughly $360 billion. Nearly every group testifying at the meeting criticized the proposal, with the exception of the United Auto Workers, whose representative said the UAW supported “targeted measures to boost U.S. manufacturing.”
While union workers might benefit from protectionism against foreign-made vehicles, their livelihood could be harmed by tariffs on imported auto parts, which would drive up the cost of U.S.-made automobiles. Retaliatory tariffs would also result in lower sales of U.S. automobiles abroad, effecting the industry labor force.
Trade groups warn of higher costs and job losses for companies that manufacture engines, brake components and other car parts. “Vehicle suppliers are the largest sector of manufacturing jobs in the U.S., directly employing over 871,000 Americans in all 50 states,” said Ann Wilson, a senior vice president with the Motor & Equipment Manufacturers Association, at the Commerce Department hearing.
Wilson said her association recently polled its membership of 1,000 vehicle suppliers, and nearly 80 percent of those responding said the proposed tariffs would have a negative impact on business. “Most job cuts would occur within the first six months of the tariffs,” Wilson testified.
Trump has long argued that tough trade policies will force foreign competitors to make concessions, even if they cause some pain at home in the short term.
“Workers are back on the job and we are once again pouring new American steel into the spine of our country,” he said during a July visit to a reopened U.S. Steel plant in Illinois.
If Trump imposes new auto and parts tariffs, Canada and other countries will surely retaliate, as they have against past tariffs. Half of the parts used in cars assembled in Canada come from the United States, and U.S. automakers account for 43 percent of the Canadian market, according to the Canadian consulate in San Francisco.
Thomas, the Automobile Alliance lobbyist, said it was not precisely clear what prompted the Commerce Department to investigate auto imports, or why it was justifying the probe on national security grounds. “How can (imported) cars possibly be a threat to national security?” she asked.
A Commerce spokesman did not respond to that question, but pointed to past remarks by Ross on European Union trade barriers toward imported U.S. automobiles, including 10 percent tariffs. The United States currently imposes a 2.5 percent tariff on imported passenger cars from the EU and a 25 percent tariff on imported pickup trucks.
After months of trial balloons, the Trump administration announced last Thursday it was proposing a major relaxation of fuel efficiency standards adopted during the Obama administration. The proposed rules allow automakers to flatten out their average fuel economy for fleets to 37 miles per gallon starting in 2020, as opposed to achieving a 54 mpg average by 2025, which would involve selling more hybrid and electric vehicles.
The U.S. Environmental Protection Agency and U.S. Department of Transportation, the two agencies that unveiled the proposal, estimated it would result in a $2,340 reduction in average car purchase costs, encouraging consumers to buy new models, and retire their older cars. The proposal has “everything to do with just trying to turn over the fleet...and get more clean and safe cars on the road,” said Bill Wehrum, an EPA assistant administrator and former oil industry lobbyist.
But the proposal would result in a boost in extra consumption of 500,000 barrels of fuel daily nationwide, according to the two agencies, which would come out of the pocket of consumers. Those extra fuel costs would likely cost a typical motorist several hundred dollars yearly, depending on yearly mileage and future gasoline prices, offsetting some of the project EPA savings.
For automakers, the Trump rollback is only a partial victory, because it leaves uncertain California’s ability to regulate greenhouse gas emissions from cars. The Trump administration has signaled it will work to revoke California’s legal authority to set its own emissions limits and mandate sales of electric cars, but such a challenge would surely result in a lengthy legal battle.
If California were to prevail, automakers would be forced to comply with two sets of standards — one for California and the dozen states that have adopted its emissions limits, and one for the rest of the country.
So for now, automakers are waging a battle on two fronts — one to head off Trump’s proposed tariffs, and another to encourage California and the administration to go back to the bargaining table.
“We urge California and the federal government to find a common sense solution that sets continued increases in vehicle efficiency standards while also meeting the needs of American drivers,” the Alliance of Automobile Manufacturers said in a statement last week.