For Lyndon Johnson, the proof that his trade tactics were working was in the pickup-truck market.
That was five decades ago, however, and the automotive industry — not to mention the rest of the world — has changed dramatically. President Trump’s proposed sequel to his predecessor’s ‘chicken tax’ is virtually guaranteed not to deliver the payoff the White House wants, according to industry producers, lawmakers, and economists.
The 25 percent tariff that Johnson imposed on light trucks in 1963, part of broader retaliation for European restrictions on U.S. poultry imports, eliminated a threat from Volkswagen, whose popular van was winning a large enough share of the market to worry U.S. automakers.
While the duty has never been removed, Trump’s proposal to build on its success with a levy on all foreign vehicles and parts hasn’t received the warm welcome that the president predicted when he teased it on Twitter — even from U.S. automakers and parts producers. Some caution that, far from protecting and creating American jobs, as Trump hopes, tariffs might actually reduce them.
Part of the reason is that the term “U.S. automakers” doesn’t mean the same thing that it did in the 1960s, when it referred primarily to companies headquartered in America that built and sold automobiles here, firms like Ford, General Motors, Chrysler and American Motors. Today, it describes not only traditional U.S. carmakers but firms such as Honda, Mercedes-Benz and BMW, whose Spartanburg, S.C., plant is the country’s largest exporter by value.
Making it costlier for those companies to do business in the U.S. could result in cutbacks not only for carmakers but for the myriad parts-manufacturers that supply them.
“Imposing a ‘chicken tax’ on cars and parts and sport-utility vehicles is just much, much harder to do now because of the structure of the industry and the structure of how the products are built and designed,” said Kristin Dziczek, vice president of industry, labor and economics for the Center for Automotive Research, based in Ann Arbor, Mich.
The tool that Trump proposes using for the tariffs, Section 232 of the Trade Expansion Act of 1962, presents another possible dilemma. The provision, which authorizes the president to impose tariffs to protect national security, is the same one the administration used earlier this year to place duties on steel and aluminum imports.
While so-called 232 tariffs were viewed as unorthodox even when applied to metals, that industry has been in decline for decades. Automakers, by contrast, have added workers since government bailouts in 2009, though companies based in the U.S. still lack the market heft they once wielded.
“There has been growth in employment, growth in wages, growth in output and the industry overall is operating above 80 percent capacity, and the assembly capacity is about 90 percent,” Dziczek said. “So some of things the administration did in the aluminum and steel case, where they were showing an industry with capacity that was underutilized and really getting beat up on price in the world market, it’s much more difficult to show that for the auto industry and for the parts industry.”
Indeed, according to the Alliance for Auto Manufacturing, which represents companies responsible for 70 percent of U.S. auto sales, 15 new plants have opened in the U.S. in the past 25 years, creating 50,000 jobs directly and helping power indirect payroll growth of 350,000.
“We are confident that vehicle imports do not pose a national security risk to the U.S.,” the Alliance said in a statement.
Commerce Secretary Wilbur Ross, however, painted a different picture, using figures over a wider time frame when he announced that his department was investigating the situation and would prepare a report recommending what action, if any, the president should take.
“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” he said, explaining that the resulting economic damage might impair national security. Since 1998, imports of passenger vehicles have grown from 32 percent of cars sold in the U.S. to 48 percent, according to the department, while auto-manufacturing jobs dropped 22 percent between 1990 and 2017.
If the administration decides to go ahead, it’s American consumers who will be hurt, said John Bozzella, head of the Association of Global Automakers, which represents the U.S. operations of international producers.
“They will have fewer vehicle choices and higher car and truck prices,” Bozzella said. “This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners.”
The impact of tariffs on auto-parts producers might produce even more economic damage, since it employs 871,000 people nationwide, up 19 percent since 2012, and far more than carmakers themselves. Consumer spending driven by that payroll fuels as many as 4.26 million jobs, or about 3 percent of total U.S. employment.
“Our concern about the proposed tariff on auto parts is that it’s going to impact both our global supply chain — our members who have a global footprint — and it’s also going to impact those manufacturers who are truly only U.S.-based manufacturers,” said Ann Wilson, senior vice president of government affairs at the Motor & Equipment Manufacturers Association.
Such companies might make one component of a larger piece — the vinyl handles for the interior portion of a car door, for instance — but sell that part to a direct supplier for a carmaker based outside the U.S.
If that carmaker decides to do less manufacturing in the U.S. because importing supplies from its global facilities is more expensive due to the tariffs, “that is going to impact the ability of U.S. manufacturers to manufacture in this country,” Wilson explained.
“We believe that the tariffs will have a negative impact on growth, a negative impact on the supply chain, and therefore, a negative impact on employment,” she said.
A 25 percent tariff on vehicles and parts would increase average automobile costs by 7.6 percent, estimated Colin Langan, an analyst with the Swiss bank UBS. That could curb annual U.S. auto sales of 17.1 million by about 1.8 million, he said.
It’s possible, of course, that the administration hopes to leverage the potential tariffs to win concessions from Canada and Mexico in Trump’s renegotiation of the North American Free Trade Agreement, said Chris Krueger, an analyst with Cowen Washington Research Group.
But those talks themselves have rattled members of Congress from districts and states that rely on business generated under the treaty.
Regardless of the motive, Commerce’s consideration of national-security implications in the auto market “is deeply misguided,” said Sen. Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee and criticized the metals tariffs earlier this year.
“For most Americans, cars are the second largest purchase they make, after their homes,” he said. “Taxing cars, trucks and auto parts coming into the country would directly hit American families who need a dependable vehicle, whether they choose a domestic or a global brand. “
