May 24, 2018 5:00 PM, EDT

Trump’s Auto-Tariff Threat Adds New Pressure to NAFTA Talks

David Maung/Bloomberg News

President Donald Trump’s threat to impose sweeping new tariffs on imported automobiles may be an attempt to pressure his NAFTA partners into striking a deal that would help drive manufacturing jobs back to the United States.

Trump directed Commerce Secretary Wilbur Ross on May 23 to initiate a so-called Section 232 national-security investigation into imports of cars, trucks and vehicle parts that could possibly lead to tariffs.

These investigations can take months to conclude. In the meantime, the clock is ticking to clinch a NAFTA deal that can be voted on by the current Congress this year. An agreement over auto-production rules has been one of the key sticking points in nine months of talks.

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The looming threat of auto levies could further weigh on Mexico and Canada, which have a large stake in the U.S. auto market as the two biggest foreign suppliers of vehicles.

It’s “inconceivable” that Canada would pose a threat to America’s security, Adam Austen, spokesman for Canadian Foreign Minister Chrystia Freeland, said in an e-mail May 24.

“Canada and the United States have the greatest economic and security partnership of any two countries in the world,” he said.

Any attempt to use the auto-import probe as leverage is unlikely to work, said Bill Reinsch, a former Clinton administration commerce official and now a senior adviser at the Washington-based Center for Strategic and International Studies.

“A deal on autos is within reach but the other U.S. demands remain unresolved, and Canada and Mexico are not going to agree on autos without assurances on the other stuff,” Reinsch said.

“I don’t see how bullying them on auto tariffs will change that.

In addition, you’re talking about a process that is going to take some time.”

The Commerce Department, which is leading the probe, said in a statement May 23 that automobile manufacturing “has long been a significant source of American technological innovation.”

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The investigation will examine whether the decline of the U.S. automobile sector threatens to weaken the U.S. economy by reducing research and development, skilled jobs and more advanced manufacturing processes such as electric and autonomous vehicles, Commerce said.

Hours before the announcement of the investigation May 23, Trump said on Twitter that “big news” was “coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!”

‘Not Smart’

Linda Hasenfratz, CEO of Canada-based auto-parts maker Linamar Corp., said it’s “ludicrous” to suggest vehicle imports from Canada and Mexico represent a security risk.

“This is clearly a negotiating tactic to draw to a close the ongoing NAFTA negotiations and other trade disputes,” she said in a statement May 24. “While I support coming to an agreement on NAFTA to eliminate that uncertainty and allow us to all get back to business, I certainly don’t support a tactic which will drive inflation and ultimately economic recession.”

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Canadian auto parts stocks slipped on the U.S. move. Magna International Inc., North America’s largest auto supplier, was down 1.2% at 1:03 p.m. in Toronto, while Martinrea International Inc. fell 1.6% and Linamar dropped 1%.

More than half of the cars built in Canada are made by American manufacturers with a majority of U.S. content, said Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers’ Association. Tariffs would “punish American companies, suppliers and customers. This is not smart,” Volpe said.

The Trump administration already has stoked tensions with Canada and Mexico by threatening to impose permanent tariffs on imported steel and aluminum if they don’t agree to successfully conclude a revamped NAFTA. Those duties are being implemented as part of separate Section 232 probes into the metals that wrapped up earlier this year. Temporary relief from the duties for Canada and Mexico is due to expire June 1.

Trade experts were at a loss to explain how the booming U.S. auto sector could be considered a national-security risk.

They also warned the measures would be hard to defend at the World Trade Organization and are likely to invite retaliation from a number of countries, if Trump follows through.

“This is a case where there is no auto shortage, the companies are not currently in trouble, and there are plenty of alternative sources from friendly allies,” Reinsch said.

With assistance from Josh Wingrove and Natalie Wong.