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May 24, 2018

Trump's threat of auto tariffs complicates NAFTA talks

NAFTA 2.0 still on the table, Trump's auto tariff threat just a tactic: Economist

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President Donald Trump’s threat to impose sweeping new tariffs on imported automobiles may be an attempt to pressure his NAFTA partners into striking a deal that would help drive manufacturing jobs back to the U.S.

Trump directed Commerce Secretary Wilbur Ross on Wednesday to initiate a so-called Section 232 national security investigation into imports of cars, trucks and vehicle parts that could possibly lead to tariffs.

These investigations can take months to conclude. In the meantime, the clock is ticking to clinch a NAFTA deal that can be voted on by the current Congress this year. An agreement over auto-production rules has been one of the key sticking points in nine months of talks.

The looming threat of auto levies could further weigh on Mexico and Canada, which have a large stake in the U.S. auto market as the two biggest foreign suppliers of vehicles.

Any attempt to use the auto-import probe as leverage is unlikely to work, said Bill Reinsch, Scholl Chair at the Washington-based Center for Strategic and International Studies.

“A deal on autos is within reach but the other U.S. demands remain unresolved, and Canada and Mexico are not going to agree on autos without assurances on the other stuff,” Reinsch said. “I don’t see how bullying them on auto tariffs will change that. In addition, you’re talking about a process that is going to take some time.”

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The Commerce Department, which is leading the probe, said in a statement on Wednesday that automobile manufacturing “has long been a significant source of American technological innovation.”

The investigation will examine whether the decline of the U.S. automobile sector threatens to weaken the U.S. economy by reducing research and development, skilled jobs and more advanced manufacturing processes like electric and autonomous vehicles, Commerce said.

Hours before the announcement of the 232 investigation on Wednesday, Trump said on Twitter that “big news” was “coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!”

The Trump administration has already stoked tensions with Canada and Mexico by threatening to impose permanent tariffs on imported steel and aluminum if they don’t agree to successfully conclude a revamped NAFTA. Those duties are being implemented as part of a separate Section 232 probe into the metals that wrapped up earlier this year. Temporary relief from the duties for Canada and Mexico is due to expire on June 1.

Trade experts were at a loss to explain how the booming U.S. auto sector could be considered a national security risk. They also warned the measures would be hard to defend at the World Trade Organization and are likely to invite retaliation from a number of countries, if Trump follows through.

“This is a case where there is no auto shortage, the companies are not currently in trouble, and there are plenty of alternative sources from friendly allies,” Reinsch said.

Canadian auto parts stocks slipped on the move. Magna International Inc., North America’s largest auto supplier, dipped 1.7 per cent at 11 a.m. in Toronto, while Martinrea International Inc. fell 2 per cent and Linamar Corp. dropped 2.2 per cent.

--With assistance from Josh Wingrove.

The Trump Administration