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Updated October 24, 2018
Section 232 Auto Investigation
Background
decreased in two other major auto producing countries,
On May 23, 2018, the Trump Administration initiated a
Japan and Germany.Major distinguishing factors in the U.S.
Section 232 investigation into the imports of motor vehicles
market during this time include:
and automotive parts (83 FR 24735) to determine if those
an increase in the number of foreign-owned auto
imports threaten to impair U.S. national security. The
manufacturing plants in the United States from seven
Department of Commerce (Commerce) in part bases its
in 1992 to 17 in 2018;
investigation on an increase of imported passenger
the growth of Mexico as a source of vehicles for U.S.
vehicles’ share of domestic sales (from 32% of U.S. vehicle
sales from one million per year when the NAFTA
sales to 48% over the past 20 years). U.S. code does not
entered into force in 1994 to four million in 2017;
define national security, giving Commerce latitude in the
the doubling of U.S. vehicle exports in recent years to
investigation’s scope.
more than 2 million units in 2017; and,
The Section 232 investigation is a component of a broader
a change in the U.S. fleet composition with a growing
agenda related to U.S. trade and the auto industry including:
U.S. consumer preference for light trucks over
(1) expanding domestic auto manufacturing and domestic
passenger cars: 65% of U.S. sales were light trucks in
content in autos; (2) addressing bilateral trade deficits; and
2017, compared to 50% in 2012. (As a result, some
(3) reducing disparities in U.S. and trading partner tariff
automakers are discontinuing production of traditional
rates. At 2.5%, U.S. passenger auto tariffs are lower than
passenger cars.)
some trading partners, including the European Union (EU),
Figure 1. Origin of U.S. Vehicle Sales
with auto tariffs of 10%. U.S. tariffs on light trucks,
Passenger Cars and Light Trucks
including pick-ups and sport utility vehicles, are much
higher at 25%. President Trump has stated a desire to place
a 25% tariff on auto imports. Several Members have voiced
concern about the investigation and potential tariffs. In July,
a bipartisan group of 149 Representatives sent a letter to
Commerce seeking to end the investigation. Pending
legislation could place some limitations on current
presidential authorities under Section 232.
Commerce received more than 2,000 comments on the
Section 232 investigation and held a public hearing on July
19. Labor union groups generally support the investigation.
The U.S. motor vehicle industry has voiced strong
Source: CRS analysis based on Ward’s Automotive Database, and
opposition to tariffs and had a united position at the
U.S. International Trade Administration import data.
Commerce hearing. While originally announcing plans to
U.S. vehicle sales are increasingly composed of imports
conclude the investigation in August, Secretary Wilbur
(Figure 1), although more than half of imported vehicles
Ross later stated that the volume and detail of the submitted
were manufactured in Canada or Mexico with significant
comments would preclude the Administration from making
U.S. content, including engines, transmissions and other
a determination until after the November 2018 elections.
components. Some assemblies, such as steering and braking
The U.S. Automotive Industry
systems, cross the border up to six times as plants in the
NAFTA region add components. More than half of U.S.
Integrated Global Supply Chain
imports from Canada and Mexico are produced by General
Over the past 25 years, the global auto industry has almost
Motors, Ford, and Fiat-Chrysler.
doubled in size, driven by China’s growth as a major auto
Motor Vehicle Industry Employment and R&D
producing and consuming nation, making and selling more
than 28 million vehicles in 2016. General Motors now sells
Motor vehicle assembly and parts manufacturing generate
more vehicles in China than in the United States. China’s
significant employment opportunities in almost every U.S.
rise in vehicle and parts manufacturing has added a new,
state. Employment has not fully recovered from the 2008-
often inexpensive, source of parts that may compete with
2009 recession. U.S. vehicle assembly and parts
manufacturers in other countries. In 2017, 31 countries sold
manufacturing employed 969,228 workers in 2017,
over $100 million in auto parts in the United States.
compared with 992,600 in 2007, according to the Bureau of
Labor Statistics. About 60% is in manufacture of parts and
Since the North American Free Trade Agreement (NAFTA)
components.
went into force, U.S. production growth has been relatively
Motor vehicle industry research and development (R&D)
steady, except during recessions, rising from 9.7 million
has grown and new technologies and robotics allow
vehicles in 1992 to 12.2 million in 2016. At the same time,
manufacturers to raise productivity and build more vehicles
South Korea and Mexico also increased production, while it
with fewer workers. The vehicle and parts industry spent
https://crsreports.congress.gov
Section 232 Auto Investigation
$17 billion on R&D in 2015, compared to $12 billion in
of the recent U.S.-South Korea free trade agreement
2011, according to National Science Foundation surveys.
modifications, but these did not include an exemption from
Potential Economic Impact
potential Section 232 tariffs.
Tariffs on U.S. auto and auto parts imports could have
Figure 2. U.S. Motor Vehicle and Parts Imports, 2017
significant effects on the U.S. economy, depending on how
broadly and how long they are in effect. To date, the Trump
Administration has imposed tariffs on approximately $95
billion of U.S. imports of steel, aluminum and various
Chinese products. Additional tariffs on U.S. motor vehicle
and parts imports, which totaled $361 billion in 2017
according to the U.S. Census Bureau, would increase the
share of U.S. goods imports affected by the
Administration’s tariff actions from 4% to nearly 20%.
Economists generally argue that using tariffs to encourage
domestic production can lead to an inefficient and less
productive allocation of resources. The uncertainty created
by the current and potential tariffs on autos and auto parts
Source: Census Bureau, FT-900.
may also reduce investment. Ultimately, the tariffs could
Issues for Congress
increase the price of motor vehicles sold in the United
Multiple Members, including the chairs of the House Ways
States, prompting some consumers to delay purchases or
and Means and Senate Finance Committees, have raised
purchase used cars instead of new vehicles, and generating
concerns about the Section 232 auto investigation. Some
inflationary pressures. The Center for Automotive Research
issues Congress may consider in this debate include:
estimated that a 25% tariff applied to all vehicles sold
National security definition. Many observers question
domestically could raise the price of an average car sold in
the linkage between U.S. auto production and national
the United States by $4,400. The Peterson Institute for
security. Does the current investigation adhere to
International Economics estimated similar price increases.
statutory criteria and should those criteria be changed?
These would be on top of any price increases from the steel
Trade authority. Section 232 gives the President broad
or aluminum tariffs. The economic side-effects could be
authority to restrict U.S. imports. Legislation has been
minimized if the tariffs are being used in the short-term as
introduced to curtail that authority (e.g., S. 3329, S.
negotiating leverage.
3013 and H.R. 6337). What are the tradeoffs between
Estimating the effect of tariffs on U.S. auto production is
restricting the President’s authority and expeditiously
complicated by the globally integrated nature of automotive
addressing national security concerns?
supply chains. Tariffs on assembled autos could make
Economic impact. Tariffs on U.S. auto and parts
imported vehicles more expensive in the U.S. market,
imports could significantly increase costs for U.S.
potentially increasing demand for and production of U.S.-
consumers and U.S. auto firms using imported parts and
made vehicles. Tariffs on auto parts, however, could
are generally opposed by the domestic industry they are
counteract this effect by increasing the cost of imported
designed to assist. Retaliation may also occur. Do
inputs, leading to higher prices of U.S.-produced vehicles.
economic benefits of the tariffs justify costs?
How big an effect would depend on the availability of
International trading system. How do unilateral U.S.
domestic substitutes for foreign auto parts. Higher input
actions affect other countries’ adherence to World Trade
costs, as well as retaliatory tariffs imposed by U.S. trading
Organization commitments?
partners, such as the EU, could also make U.S.-produced
NAFTA renegotiation. How would the proposed
autos less competitive in foreign markets, leading to a
USMCA and its modifications to the NAFTA auto rules
reduction in U.S. exports. Depending on the types of non-
of origin affect U.S. auto production and the
vehicular products targeted, retaliatory tariffs could also
Administration’s interest in a potential Section 232 auto
lead to export declines in other U.S. industries.
tariff? Should the Administration lift the Section 232
Relationship to Trade Negotiations
tariffs currently on imports of Mexican and Canadian
steel and aluminum now that USMCA negotiations are
Autos and parts are the top export category for a number of
complete?
significant U.S. trading partners and the Administration
For more information on Section 232 and recent use by the
may be using the threat of tariffs on these products to create
Trump Administration on imported steel and aluminum, see
U.S. leverage for ongoing and future negotiations (Figure
CRS In Focus IF10667, Section 232 of the Trade Expansion
2). For example, alongside the proposed U.S.-Mexico-
Act of 1962, and CRS Report R45249, Section 232
Canada Agreement (USCMA) to replace NAFTA, the
Investigations: Overview and Issues for Congress.
United States released side letters with Mexico and Canada
that would exempt specified volumes of vehicle, light truck,
Rachel F. Fefer, Coordinator, Analyst in International
and auto part imports from any potential Section 232 tariffs.
Trade and Finance
The Administration stated it would not consider imposing
Bill Canis, Specialist in Industrial Organization and
auto tariffs on the EU while recently announced, broader
Business
trade negotiations are underway. Similarly, the
Administration agreed to not impose auto tariffs on Japan
Brock R. Williams, Analyst in International Trade and
after announcing on September 26, 2018, that the two
Finance
parties agreed to begin trade negotiations. Autos were part
IF10971
https://crsreports.congress.gov
Section 232 Auto Investigation
Disclaimer
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https://crsreports.congress.gov | IF10971 · VERSION 5 · UPDATED