Friday , May 24 2019

Trump’s auto tariff plan is as bad as it gets

Evidently, President Donald Trump is still toying with the idea of imposing steep tariffs on cars and automotive parts. In a White House brimming with bad economic ideas, this would be the worst one yet.
Last month, the Commerce Department completed a confidential report on the national-security implications of auto imports. If the probe uncovered a threat of some kind, real or imagined, the president would have wide latitude under the law to restrict or limit imports in response. Trump has mused about imposing duties of 25 percent to induce the European Union (EU) to make trade concessions. Europe has to “play ball,” he’s said, or “we’re going to tariff the hell out of you.”
This would be as foolish as it sounds. A tariff of that size would be a tax increase of perhaps $80 billion on the US economy. It would sharply increase prices, reduce growth, impede investment, cost American jobs, infuriate allies, invite painful retaliation and undermine the system of global trade. By one reckoning, it could reduce US gross domestic product by $62 billion.
The US auto industry has united in opposition to the idea, because it would harm the very industry it’s supposed to protect. America’s automakers rely on imported parts that aren’t produced or easily available domestically. If a 25 percent tariff were imposed, costs would rise and sales would plunge by perhaps 2 million cars a year. According to one analysis, the industry’s production could fall by 1.5 percent and 195,000 American jobs would be at risk. Retaliation by trade partners might triple that tally. Consumers, too, would feel the pain. On average, the price of imported cars could rise by nearly $6,000 and domestic cars could go up by $2,000.
Careful targeting of any new tariffs could reduce these costs somewhat, but even then the overall effect isn’t in doubt. Recent history offers plenty of examples: Both George W. Bush’s steel duties and Barack Obama’s tire tariffs helped the industries they targeted only modestly, while doing significant damage to the broader economy.
These latest tariffs would also gratuitously antagonise America’s allies. Germany’s car exports would fall by 7.7 percent, according to one study, at a time when its economy is already struggling. EU retaliation seems certain, and would come at the expense of American farmers and manufacturers. “We can also do stupid,” said the head of the European Commission, aptly.
Maybe the worst aspect of the whole scheme — which would be saying a lot — is that its rationale is brazenly false. The claim that imported cars and parts pose a national-security threat is absurd. (Fewer than half the autos sold in the US last year were imported; of those, 98 percent came from close allies. Many of the companies that would be most affected assemble their cars in American factories.) Trump’s steel and aluminum tariffs were imposed on the same indefensible basis. This approach is a license for all governments to declare specious emergencies of their own. It represents a mortal threat to the global trading system that has benefited the US for decades.
“I happen to like tariffs,” Trump said recently, as if that’s all one needs to know. Actually, in a way, it is. Leaving trade policy to this administration is strategically reckless and economically unaffordable. Congress should reassert its constitutional authority over tariffs, demand a review of national-security designations, and bring this nonsense to a stop.

—Bloomberg

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