US car imports may be the next target for tariffs

Is the US trade deficit a bad thing?
Is the US trade deficit a bad thing?

President Donald Trump is laying the groundwork for a new global trade battle -- this time over cars.

Commerce Secretary Wilbur Ross said late Wednesday that following a conversation with Trump, he is launching an investigation into whether automobile imports are hurting US national security.

"There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry," Ross said in a statement.

The type of investigation, known as Section 232, is the same approach the Trump administration used before it slapped tariffs on steel and aluminum imports earlier this year, citing national security concerns.

"Core industries such as automobiles and automotive parts are critical to our strength as a Nation," Trump said in a statement.

The Commerce Department said the investigation will cover cars, SUVs, vans, light trucks and automotive parts. It made no mention of the possible measures that could follow, but The Wall Street Journal reported that Trump was seeking tariffs of as much as 25% on auto imports.

Related: NAFTA talks could be on 'thin ice,' top US negotiator says

The move is already drawing opposition from parts of the American auto industry.

"To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees," said the American International Automobile Dealers Association, which represents franchises that sell foreign brands like Toyota (TM) and Volkswagen (VLKAY).

The association warned in a statement that tariffs would push up car prices for American families.

The investigation is also likely to fuel new tensions with US trading partners. The steel and aluminum tariffs angered American allies like the European Union and drew retaliatory measures from China.

The biggest exporters of new passenger vehicles and light trucks to the United States last year were Mexico, Canada, Japan, Germany and South Korea, according to US government figures. The biggest exporters of auto parts were Canada, Mexico, China, Germany and Brazil.

China, which is in the midst of delicate talks with the United States to avoid a trade war, said Thursday that it's "opposed to the abuse" of national security rules.

"We will closely watch developments of the US investigation, conduct a comprehensive assessment on its potential impact and resolutely safeguard our own legitimate interests," Chinese Commerce Ministry spokesman Gao Feng said at a weekly news briefing Thursday.

Japanese government officials also expressed concern and said they would follow the investigation closely.

"Restrictive measures on such a large industry would adversely affect global markets" and risk disrupting the global trading system, Trade Minister Hiroshige Seko told reporters.

Related: Trump tempers expectations for possible US-China trade deal

Canada and Mexico are already locked in tortuous negotiations with the Trump administration to revamp the North American Free Trade Agreement that links the three countries.

Earlier Wednesday, Trump said Canada and Mexico have been "very difficult to deal with" during the negotiations.

He repeatedly hinted during the day that some kind of move related to the auto industry was in the works.

"There will be big news coming soon for our great American Autoworkers," he tweeted. "After many decades of losing your jobs to other countries, you have waited long enough!"

Trump previously sought to use the steel and aluminum tariffs as a negotiating tactic in the NAFTA talks. But Canada and Mexico both rejected the idea of linking the issues, saying the metal tariffs should remain separate.

The Trump administration ended up granting temporary exemptions from the metal tariffs to some trading partners, including Canada, Mexico and the EU.

The share prices of major carmakers in Asia fell following the announcement of the auto investigation. Toyota and Honda (HMC) both dropped more than 3% in Tokyo on Thursday, and Mazda (MZDAF) sank more than 5%.

-- Steven Jiang, Junko Ogura Daniel Shane, Betsy Klein and Steve Brusk contributed to this report.

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