Despite hopes that the negotiations to salvage the North American Free Trade Agreement will conclude with some degree of success, the other fronts in U.S. President Donald Trump’s trade wars continue to escalate. The looming tariffs on another $200 billion in U.S. imports from China will carry high costs for American consumers and exporters, much higher than the first round of tit-for-tat tariffs on $50 billion in trade with China this summer. Yet it is the political and institutional implications of potential tariffs on $200 billion in automobile imports later this year that raise even bigger questions.
For many consumers, cars are the most expensive single item they will buy, except for a house. Trump’s threat to impose a 25 percent tariff on imported cars would further raise those costs by disrupting the trade in automobiles with Mexico—one of NAFTA’s signature benefits—and by making European and other foreign cars more expensive, all in the dubious name of national security. As with other elements of the president’s trade wars, however, the toll from these policies would extend well beyond the immediate, direct costs. There will be long-lasting diplomatic costs from the president’s use of threatened car tariffs as a bludgeon to get trading partners to cave to his other trade demands. And in using a national security rationale, again, Trump risks deeper disruption to the global trading system overall. Moreover, at the end of the day, the purported beneficiaries in the American auto industry, which opposes the tariff proposal, might actually lose sales and jobs as a result.
Trump’s decision last spring to use Section 232 of the Trade Expansion Act, which permits tariffs based on national security concerns, to impose duties on steel and aluminum was troubling. But invoking a national security rationale in that case was not ridiculous on its face. The military does need those materials for its weapons, tanks, planes and ships, though the demand is a tiny share of total American production. Using the same rationale to threaten tariffs on automobile imports—including cars, SUVs, vans and trucks, as well as all auto parts—is cynical and a slap in the face to the rest of the world. The economic consequences of targeting the automobile sector are also more serious because it is a much bigger factor in American and global trade flows than steel and aluminum.