Trump plans to delay auto tariffs amid EU, Japan trade talks

President Donald Trump is poised to delay a decision by up to six months to impose auto tariffs to avoid blowing up negotiations with the EU and Japan and further antagonize allies as he ramps up his trade war with China, according to people close to the discussions.

Trump faces a May 18 deadline over how to proceed with his threat to slap a tariff of as much as 25% on imported cars and parts in the name of US national security.

The news was welcomed by an equities market that has been battered by renewed trade concerns since last week.

General Motors deferred comment on the tariff decision delay to industry representatives, while Ford declined to comment and Fiat Chrysler could not be immediately reached.

Trump, who is due to make a state visit to Japan later this month, remains a wild card according to people close to the discussion. Trump and a small group of aides including Commerce Secretary Wilbur Ross and trade adviser Peter Navarro are seen to be in favour of the new import duties against the advice of other advisers.

But people close to the discussions say even advocates of tariffs are still debating the scope of any action, complicating the discussions. Other advisers including US Trade Representative Robert Lighthizer, who is leading the negotiations with the EU and Japan, have been urging Trump to postpone a decision, according to administration officials and other people familiar with the deliberations.

At a White House meeting on 14 May, officials firmed up the decision to delay tariffs for up to 180 days, according to two people familiar with the deliberations. A decision is expected to be announced publicly before the end of the week.

Spokespeople for Ross and Lighthizer did not immediately respond to a request for comment, and the White House declined to comment.

Trump last year ordered a Commerce Department investigation into whether imported cars and parts posed a threat to US national security and he was presented with a final report laying out a series of recommendations in February. The findings were not publicly released.

According to people who have seen the report, the justification for auto tariffs is not that the imports of vehicles and auto parts per se are a threat to national security, but it’s the portion they contribute to the overall US trade deficit that could cause harm.

“The reason autos are very important to our trade picture is about half of our trade deficit comes from the single product, automotive, and about the other half of our trade deficit comes from a geographic area and that’s called China,” Ross said on Friday.

In closed-door meetings with foreign countries and auto representatives, officials from the US Trade Representative’s office and Commerce have indicated for several weeks that the president will delay his decision and the duties will not derail ongoing trade negotiations.

Trump advisers have cautioned the president that action on auto tariffs could risk serious pushback from Congress. Trump’s own party is threatening to move forward with legislation to limit the president’s tariff authority with many in Congress saying duties on cars, which are widely opposed by the auto industry, would be a step too far.

Trump’s advisers for months have been debating a strategy to delay the deadline and make the case that imposing broad auto tariffs would derail not only trade talks with Japan and the EU but also passage of the new US Mexico Canada Agreement through Congress.

The US imported $191.7bn in passenger vehicles and light trucks in 2018 with more than $90 billion of those imports coming from Canada and Mexico, which are duty-free under NAFTA.

Passenger cars are now subject to a 2.5% US tariff but Trump has threatened to raise that to 25%, arguing that the EU and other countries have higher barriers to US auto exports.

Any new tariffs would hit imported cars from Japan, South Korea and Europe hardest. But they would also hit the supply chains of many domestic producers who rely on imported parts and foreign automakers with manufacturing operations in the US

Tariffs on European cars imported into the US would disproportionately hurt Volkswagen Group's Porsche and Audi brands, as Porsche imports all of its US-sold cars from Europe, while Audi imports more than two thirds, according to data compiled by Bloomberg Intelligence.

Mercedes-parent Daimler would also be affected, as 64% of its US-sold cars come from Europe. BMW would be slightly better off, with more than half of its US cars being made locally.

The National Automobile Dealers Association estimates that the tariffs would add as much as $2,270 to the cost of US-built cars and $6,875 to the cost of imported cars and trucks.

“We are deeply concerned that the administration continues to consider imposing auto tariffs,” the Alliance of Automobile Manufacturers, a trade group representing the largest domestic and foreign car makers with operations in the US, said in a statement. “At the end of the day, you can have tariffs or investment, but you can’t have both.”