Tariffs Are (Still) Bad Policy

Learn more about Laura Collins.
Laura Collins
Director, Bush Institute-SMU Economic Growth Initiative
George W. Bush Institute

Automotive trade tariffs will hurt American workers and consumers.

The Commerce Department, at the urging of the White House, recently announced it will open an investigation to examine if our national security has been harmed by imported vehicles and auto parts and if tariffs should be imposed to restore the nation’s security. The legal mechanism, Section 232 of the Trade Expansion Act, is the same tool the administration used to impose steel and aluminum tariffs earlier this year.

It is difficult to find new and creative ways to say that tariffs are bad policy, so I will not attempt to do it. I will just reiterate, yet again, that tariffs are bad policy. And in the context of automobile manufacturing in the U.S., these tariffs are potentially devastating.

The U.S. auto manufacturing industry is highly dependent on the supply chain created by the North American Free Trade Agreement (NAFTA). Vehicles are not wholly manufactured in the U.S. Different parts are produced in the U.S., Canada, Mexico, and outside North America. Those parts are partially assembled in one NAFTA country before being shipped across the border to another country. There, the partially-assembled components join other partially-assembled components to create a portion of a vehicle. This process continues until the finished vehicle rolls off the assembly line at one of the many plants in North America. This is true of both domestic auto manufacturers like Ford and General Motors and foreign brands like Honda or BMW.

Imposing tariffs on this process will raise the cost of vehicles made in the U.S., regardless of whether or not manufacturers relocate to the United States. It will have at least two specific bad outcomes: 1) American car buyers will pay more for the vehicles they rely on every day to transport them and their families. 2) U.S. vehicles will be less competitive in foreign markets, hurting U.S.-based auto manufacturers and brands.

There are many things we do not yet know about this 232 investigation. Will our NAFTA partners be exempt? Is this meant to only target Japanese and European manufacturers? Is this a tactic to help move along the NAFTA renegotiation process, which is reportedly stalled on a few items, including proposed new auto rules?

However, it is fruitless to threaten these tariffs to move the NAFTA renegotiation along. Given the statutory timeline that Congress must follow to approve any final agreement, there is little chance that a new NAFTA would see a vote until the new Congress is sitting in early 2019.

Why the administration wants these tariffs is less important than who they will hurt. More Americans live in places where they are car-dependent than in cities that are walkable or have reliable public transportation.

If you are buying a car in Mississippi, these tariffs will hurt you. If you are buying a truck in Nebraska, these tariffs will hurt you. If you live in one of the many states that comprise the North American auto manufacturing supply chain—Michigan, Ohio, South Carolina, Tennessee, Alabama, Texas, and more—these tariffs will hurt you.

These tariffs will hurt American workers and consumers. In addition, they will make American manufacturing less competitive on the global market, where 95 percent of the world’s consumers live. These tariffs are bad policy.