Statement of the Alliance of Automobile Manufacturers before the U.S. International Trade Commission Hearing on: “U.S.-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and Specific Industry Sectors: Inv No: TPA-105-003 November 15, 2018
Chairman Johanson and members of the Commission, my name is Jennifer Thomas and I am the Vice President of Federal Government Affairs at the Alliance of Automobile Manufacturers. The Alliance is a trade association representing 12 automakers – both domestic and international nameplates. Together, Alliance members represent approximately 70% of new car sales in the U.S. We appreciate the opportunity to share our views today on the likely impact of the United States-Mexico-Canada Agreement (USMCA) on our nation’s automobile industry.
Economic Impact of U.S. Auto Industry
By creating jobs, fueling innovation, building exports, and advancing mobility, automakers are driving the American economy forward. Historically, the auto industry has contributed between 3 – 3.5 percent to America’s total gross domestic product. Nationwide, more than seven million workers and their families depend on the auto industry. Each year, the industry generates $500 billion in paychecks, and accounts for $205 billion in federal and state tax revenues across the country. Automakers support an expansive network of thousands of suppliers and dealers throughout the country. These suppliers and dealers directly employ millions of Americans and play vital roles in local communities throughout all 50 states. No other single industry is linked to so much of U.S. manufacturing or generates so much retail business and employment.
Automakers have an established footprint throughout the country. In total, 14 domestic and international automakers currently operate 45 assembly plants across 14 states, with a heavy presence in the South and the Midwest. In the past 25 years, 15 new manufacturing plants have been launched in the U.S., and more are on the way. These 15 new manufacturing plants – and automakers’ ongoing substantial, multi-billion-dollar reinvestment in existing plants – have resulted in the creation of an additional 50,000 direct and 350,000 indirect auto jobs throughout the United States.
United States-Mexico-Canada Agreement
The U.S., Canada, and Mexico deserve a great deal of credit for successfully modernizing the North American Free Trade Agreement in just 18 months. This rebranded trilateral agreement – now referred to as USMCA – preserves the integrated regional automotive supply chain established throughout North America and has the potential to maintain the competitiveness of the U.S. based auto industry.
Alliance member companies are reviewing the details of the agreement to determine the impact on their individual companies. The Alliance and our member companies continue to work with USTR to resolve some outstanding questions and seek further clarification on various issues, including the increased regional vehicle content threshold and newly created high-wage labor value content requirement within USMCA’s updated automotive rules of origin. These new auto rules of origin are complex and will likely increase compliance costs and the administrative burden across the entire industry although the extent will vary among individual companies; thus, it is difficult for the Alliance to project the impact of these changes on the overall auto industry at this time.
Additionally, we have several questions regarding the implementation of the side letters signed with Canada and Mexico that exempt volumes of vehicles and auto parts from any increases in tariffs pursuant to Section 232 of the Trade Expansion Act of 1962. The Alliance has concerns with the precedent of establishing auto and auto parts import caps within these side letters, which contradict the very spirit of this free trade agreement. Further, the existence of these side letters seem to suggest that the Administration intends to complete its “Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts,” declare imported autos and auto parts a national security threat, and increase import tariffs to curb this purported threat. As reflected in our submission to the Department of Commerce as part of the Section 232 comment process, we do not consider imported automobiles and auto parts to be a threat to national security. The imposition of these tariffs would have significant negative ramifications on our nation’s auto industry and overall economy.
Department of Commerce Section 232 Auto Investigation
While even the threat of increased auto tariffs has created tremendous uncertainty for the entire industry, the implementation of Section 232 tariffs would seriously jeopardize the vitality of the automotive sector. Buying a new car – domestic or international nameplate – would become much more expensive, wiping out for many Americans the gains of the recently passed tax cut. Increased vehicle costs as a result of tariffs would trigger a cascading effect on the industry and economy. Demand for vehicles and parts would drop, leading to lower U.S. production and ultimately significant loss of American jobs. Additionally, for those Americans servicing their cars, they too would face inflated costs as a result of increased tariffs on auto parts. This impact does not take into account the likely retaliation by our trading partners, which would spread the economic pain across other sectors, like agriculture.
If implemented, increased auto tariffs would not only undermine the potential success of the USMCA, they would also pose a material threat to the economy and may result in the loss of as many as 700,000 jobs across the U.S.1 We strongly encourage the Administration to lift the threat of increased auto tariffs by dropping the ongoing Department of Commerce “Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts.”
Section 232 Tariffs on Imported Steel & Aluminum
The Alliance was disappointed that with the conclusion of the USMCA negotiations, the Administration did not lift the Section 232 tariffs on imported steel and aluminum. The success of both the new USMCA and our nation’s auto sector continue to be undermined by these tariffs. Over the past year, automakers have witnessed a more than 30% increase in domestic steel prices.2 The auto industry is the second largest consumer of steel and aluminum, these steep and unexpected increases in the price of key manufacturing inputs are driving up production costs for all U.S. automakers, threatening our industry’s competitiveness in the global market. As a result, several automakers have recently lowered their full-year earnings outlooks due to the increased costs of steel and aluminum. We urge the Administration to eliminate the steel and aluminum tariffs or, at the very least, provide a permanent exemption from these costly tariffs to Canada and Mexico prior to the signing of the USMCA. This would provide industry much needed certainty and maintain the region’s competitiveness in the global marketplace.
We appreciate the opportunity to provide our views on the recently announced USMCA. While the continuation of this North American trade pact is a step in the right direction, the threat of increased auto tariffs as a result of the ongoing Department of Commerce Section 232 auto investigation and the costly burden created by the existing Section 232 steel and aluminum tariffs may undermine not only the success of this trilateral agreement but the success of our nation’s auto industry and overall economy. We urge the Administration to continue down the path of facilitating free and fair trade by concluding trade pacts with key partners such as the E.U., Japan, and the U.K., and exploring additional market access opportunities for U.S. auto exports. This is the best path towards achieving our shared goal of growing U.S. manufacturing and American jobs.
- Center for Automotive Research. Trade Briefing: Consumer Impact of Potential U.S. Section 232 Tariffs and Quotas on Imported Automobiles & Automotive Parts. M. Schultz, K. Dziczek, B. Swiecki, Y. Chen. July 2018.