Tariff Crunch Time Approaching
By Matthew Bey
Zero hour has almost come for the White House as it decides whether it wants to apply additional tariffs on U.S. imports of automobiles and their parts. The Commerce Department must make its recommendation on whether the U.S. should by Feb. 17 and President Trump could act soon after. The impact of the tariffs would be far-flung.
German, Japanese and Korean automakers could find themselves priced out of parts of the U.S. market, while automakers in Mexico and Canada are likely to avoid the tariffs due to the conclusion of NAFTA talks. But the widespread implementation of auto tariffs is not a forgone conclusion. Washington hopes to use the threat of tariffs on the EU, Japan and South Korea to make those countries give up concessions in other areas of trade.
Beyond North American Free Trade Agreement countries, Japan and South Korea are the most likely to avoid the tariffs altogether. South Korea has already renegotiated its free-trade agreement with the U.S. and it has President Trump’s stamp of approval. If anything, South Korea could be asked to face a quota instead, and Seoul will likely accept it knowing that Korean automakers like Hyundai and Kia are already moving assembly plants to North America so a quota may never be binding.
Tokyo finds itself in a similar position. Japanese automakers have been building facilities in North America for three decades and some of the cars that rate highly on “Made in USA” metrics are made by Japanese companies. But the White House wants a free trade agreement with Japan. Luckily for Japan, most of the concessions that the U.S. will want Japan already agreed to in the Trans-Pacific Partnership agreement that the U.S. withdrew from in 2017. This means that Japan could dust off old concessions and amend them to get a deal.
Hardline on Europe
The European Union and Germany may not be so lucky. While the U.S. has agreed not to implement tariffs as the U.S. and EU negotiate on trade, the U.S. will eventually want the EU to breakdown some of its agricultural trade barriers, and there is simply no consensus in Europe to do so. Any comprehensive trade deal including the agricultural sector will need France’s approval and the sector is a non-starter for Paris. Unlike their Asian counterparts, German automakers have not moved en masse to North America and will face the brunt of tariffs if implemented.
One key question remains to be seen: What is President Trump’s endgame? Is the goal of the threat to break down barriers or to put them up? Trump’s fixation on reducing trade deficits may mean that the goal is the latter and that there are few concessions that Japan, South Korea or the EU — other than quotas — can offer to appease Washington. Unlike raising tariffs on Mexico and Canada, which as they are integrated into the U.S. auto supply chain would have little blowback on the U.S. auto industry. In fact, it could be beneficial.
Matthew Bey is a senior global analyst with Stratfor.com, a geopolitical intelligence firm providing strategic analysis and forecasting for professionals, government agencies and organizations around the world.
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