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Thursday, May 31, 2018

Tariff of up to 25% on the import of automobiles


Donald Trump has ordered on Wednesday an investigation on the imports of cars - including SUVs and pickup trucks - with the intention of applying a tariff of up to 25% if it determines that they put the US economy at risk. The main damaged by this measure would be Mexico, but it will also affect Germany and some Asian countries.

Trump already anticipated from his Twitter account that "very soon" there would be news about the automotive industry. Shortly afterwards, in statements to the press, he drew a direct link to the problems with the negotiation to renew the North American Free Trade Agreement (NAFTA), which governs the exchanges between the United States, Mexico and Canada since 1994, and whose trigger has been that the White House threatens to cancel it. "They will see what I'm talking about," he said laconically, "it has been very difficult to deal with them, but I will tell them that in the end we will win." In the late afternoon, he confirmed his intentions in a statement from the Department of Commerce of the world's leading power. The US government supports its suspicion in data: imports of passenger vehicles went to represent 32% of sales two decades ago to 48% today. In the same period, domestic production was reduced by 22% even though vehicle purchases are, in the heat of economic improvement, in record highs. It also points out that only 7% of the components used in the industry are of national origin.

Mexico exported last year 2.33 million vehicles to the US, by far its largest market: the northern neighbor, on which a quarter of Mexico's GDP depends, buys 75% of the vehicles that leave their assembly factories. The automotive sector is one of the great obstacles in the already very complex negotiation to update the NAFTA: Washington wants to reduce imports of finished vehicles from Mexico, which in the last three decades has become the main manufacturing platform for many companies of American origin, and force assemblers to increase the percentage of auto parts from their own territory. Beyond the Latin American country, the policy would also affect the European Union and, especially, Germany. 15% of BMW and Mercedes sales are made in the USA. Also 12% of those of Audi and 5% of those of Volkswagen. It would be, clearly, a setback in the waterline of these companies and of their American competitors, which they manufacture mostly outside the North American country.

Asian automakers such as Nissan, Toyota, Hyundai or Kia would also suffer from these new entry barriers to the US market. Hence, the governments of Japan and South Korea have been quick to say they will monitor the situation. And that China, which increasingly looks to the US as a potential market for its growing automotive industry, has added that it will defend its interests. "China opposes the abuse of national security clauses, which can seriously damage multilateral trade systems and disrupt the normal international trade order," a spokesman for the Ministry of Commerce told Reuters. "We will closely monitor the situation under US investigation and fully evaluate the possible impact and resolutely defend our own legitimate interests."