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Trump's trade decision: Impose tariffs on cars?

Imports could be security threat

DETROIT — Sometimes, on a bad night, Brad Strong wakes at 2 a.m. and can’t get back to sleep. The insomnia isn’t about his family or money or health. It’s about tariffs.

The Strong family’s three car dealerships in Salt Lake City could suffer a significant blow if President Donald Trump proceeds with a proposal to impose tariffs of 20 to 25 percent on imported autos and auto parts.

By Sunday, Trump’s Commerce Department is expected to issue an opinion on whether auto imports endanger U.S. national security enough to justify import taxes. Trump would then have 90 days to decide whether to impose them.

The department could decide to postpone its conclusion. Or it could just hand its recommendations to Trump without making them public.

But if it does suggest that Trump impose the tariffs, Commerce would be advocating a major escalation in Trump’s combative trade policies. So far, he has stuck tariffs on imported steel, aluminum, dishwashers, solar panels and hundreds of Chinese goods. The tariffs have become a financial burden for U.S. companies that import goods and parts and have led some to pass on their higher costs to customers. Many economists worry about the eventual impact on the U.S. economy.

U.S. auto tariffs would almost surely lead Japan and the European Union to retaliate. They could also spark a rebellion in the U.S. Congress — including from Trump’s fellow Republicans — over concern that he is raising tariffs by invoking his authority to label certain imports a threat to America’s national security.

“I don’t believe that minivans from Canada or other allies are a threat to our national security,” said Republican Sen. Rob Portman of Ohio. “I hope the administration takes a step back and reconsiders any auto tariffs.”

The tariffs could have far-reaching consequences. U.S. imports of passenger vehicles and auto parts amounted to $340 billion in 2017.

All three of Strong’s dealerships sell vehicles made by German automakers — Volkswagen, Audi and Porsche. The likely result is higher prices and lower sales for Strong and other dealers who sell imported vehicles.

“I worry about the people that work for me and their families,” said Strong, who fears that his dealerships would have to lay off some of their 225 employees.

If 25 percent tariffs were imposed on imported parts and vehicles the price of imported vehicles would jump more than 17 percent, or an average of around $5,000 each, according to IHS Markit. Even the prices of vehicles made in the U.S. would rise by about 5 percent, or $1,800, because all use some imported parts.

Luxury brands would absorb the sharpest increase: $5,800 on average, IHS concluded. Mass-market vehicle prices would rise an average of $3,300.

If the tariffs are fully assessed, IHS senior economist Peter Nagle predicts that price increases would cause U.S. auto sales to fall by an average of 1.8 million vehicles a year through 2026.

“We’re talking about an environment where sales are slowing already,” Nagle said.

In addition to Audi and Porsche, the most affected brands would be Mazda, Aston Martin and McLaren, which build all of their vehicles outside the U.S. The tariffs also would hit Audi, Porsche, Volvo, BMW, Mercedes-Benz, Hyundai and Volkswagen hard. Nearly 100 percent of Volvos sold in the U.S. were produced elsewhere last year. The figure is 67 percent for BMW, 63 percent for Mercedes, 84 percent for the VW group and 62 percent for Hyundai.

“I think it would be harmful to the whole economy,” said Howard Hakes, president of Hitchcock Automotive, which has three Toyota showrooms in metro Los Angeles. “You put a 25 percent tariff on that, you’re slowing down the train that’s rolling already.”

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