Business

Trump weighs six-month window for Japan and EU to agree cuts in auto imports into U.S. before tariffs

Bloomberg, Reuters

U.S. President Donald Trump will give Japan and the EU 180 days to agree to a deal that would “limit or restrict” imports into the U.S. of automobiles and their parts in return for delaying new auto tariffs, according to a draft executive order seen by Bloomberg.

According to the order, which people familiar with the matter say Trump is expected to sign this week, the administration has determined that imports of cars into the U.S. present a threat to national security because they have hurt domestic producers and their ability to invest in new technologies.

General Motors Co., Volkswagen AG, Toyota Motor Corp. and others have warned of the damaging impacts of imposing tariffs of up to 25 percent on imported cars and parts.

Shares of BMW AG surged as much as 5 percent Wednesday, while Toyota and Honda Motor Co. ended slightly lower in Tokyo in line with the broader market. Korean automakers including Kia Motors Corp. advanced on news the proclamation will exempt South Korea from any future tariffs because it renegotiated the U.S.-Korea Free Trade Agreement last year.

A report by the Commerce Department had found that America’s innovation capacity “is now at serious risk as imports continue to displace American-owned production.”

Trump was facing a May 18 deadline to make a decision on auto tariffs.

“The lag in R&D expenditures by American-owned firms is weakening innovation and, accordingly, threatening to impair our national security,” according to the draft executive order.

Spokespeople for U.S. Trade Representative Robert Lighthizer and Commerce Secretary Wilbur Ross did not immediately respond to a request for comment.

Trump will refrain from imposing tariffs for up to six months as trade negotiations with the EU and Japan are underway.

In February, the Commerce Department submitted its Section 232 national security report to the White House. The agency was investigating whether imports harmed U.S. national security by weakening American automakers’ ability to invest in future technologies. The Commerce Department’s specific recommendations have not been revealed.

Chief Cabinet Secretary Yoshihide Suga noted Thursday that when Japan and the U.S. agreed last year to open bilateral trade talks, the U.S. pledged not to impose auto tariffs while talks were underway.

“At the Japan-U.S. summit last September, Prime Minister (Shinzo) Abe confirmed directly with President Trump that while trade talks are going on no actions will be taken against the spirit of the joint statement, and additional tariffs will not be imposed under Section 232 on cars or car parts,” Suga said.

As talks proceed, the U.S. appears poised to add pressure on Japan. So far the U.S. position on autos has been unclear, but it is easy now to envision that the U.S. will demand Japan agree to limit auto shipments to the U.S. the same way that Mexico and Canada did, said Junichi Sugawara, senior research officer at Mizuho Research Institute.

“Plus, Japan now has the 180-day limit, so it’s not a good development for Japan,” Sugawara said.

Japanese and European officials have made clear a quota arrangement like the one that Mexico and Canada agreed to in the United States-Mexico-Canada Agreement, which replaced NAFTA, is a red line for them. The U.S. is in talks with both trading partners, but autos are not currently part of discussions with the EU.

The U.S. imported $191.7 billion in passenger vehicles and light trucks in 2018, with more than $90 billion of those imports coming from Canada and Mexico, which are duty-free under USMCA. Passenger cars are now subject to a 2.5 percent U.S. tariff but Trump has threatened to raise that to 25 percent, arguing that the EU and other countries have higher barriers to U.S. auto exports.

American allies Mexico, Canada, Japan and Germany are the leading sources of imported cars and trucks.