Caught in a sprawling trade dispute with U.S. rival China, President Donald Trump decided against declaring commercial war on America's friends: The White House said Friday that he is delaying for six months any decision to slap import taxes on foreign cars, a move that would hit Europe and Japan especially hard.
Trump is hoping to use the threat of auto tariffs to pressure Japan and the European Union into making concessions in ongoing trade talks.
"If agreements are not reached within 180 days, the president will determine whether and what further action needs to be taken," White House press secretary Sarah Sanders said in a statement.
The president has dusted off a rarely used weapon in the U.S. trade war arsenal—Section 232 of the Trade Expansion Act of 1962—to investigate whether auto imports are a threat to U.S. national security, justifying tariffs. The Commerce Department sent its recommendations on the issue to the White House in February. They have not been made public but are widely assumed to include the possibility of imposing auto tariffs.
Public hearings last year revealed that support for taxing auto imports is virtually nonexistent outside the White House. Not even American automakers support it.
"The case remains clear—cars are not a national security threat," the Alliance of Automobile Manufacturers, an industry trade group, said in a statement. "We are deeply concerned that the administration continues to consider imposing auto tariffs. By boosting car prices across the board and driving up car repair and maintenance costs, tariffs are essentially a massive tax on consumers."
Trump used the national security justification last year to impose tariffs on imported steel and aluminum. One of the motivations was to coerce Canada and Mexico into agreeing to a rewrite of North American free trade pact. In fact, the Canadians and Mexicans did go along with a revamped regional trade deal that was to Trump's liking. But the administration has so far refused to lift the taxes on their metals to the United States anyway.
Taxing auto tariffs would mark a major escalation in Trump's aggressive trade policies. The United States last year imported $192 billion worth of passenger vehicles and $159 billion in auto parts.
Meanwhile, Trump is locked in a high-stakes rumble with China. The U.S. accuses Beijing of stealing trade secrets and forcing American companies to hand over technology in a head-long push to challenge American technological dominance. The two countries have slapped tariffs on hundreds of billions of dollars in each other's products. Talks broke off last week with no resolution.
The hostilities between the world's two biggest economies have weighed heavily the past couple of weeks on the U.S. stock market, threatening a long rally that Trump touted as a vindication of his economic policies. Opening a new front in the trade wars against EU and Japan likely would have worried investors even more.
U.S. automakers ostensibly would benefit from a tax on their foreign competitors. But many U.S. automakers depend on imported parts that could be subject to Trump's tariffs and could become more expensive. Moreover, U.S. auto exports likely would have retaliation if the United States started taxing imported autos.
John Bozzella, president of Global Automakers, said if the president imposed new taxes on autos and auto parts, "American consumers will suffer a body blow." He said current tariffs have added cost, reduced the industry's global competitiveness and created uncertainty that has slowed investment and growth.