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Updated June 17, 2019
Section 232 Auto Investigation
Background
28 million vehicles in 2018. General Motors now sells more
On May 17, 2019, President Trump announced his
vehicles in China than in the United States. China’s rise in
Administration’s determination that U.S. imports of
vehicle and parts manufacturing has added a new, often
automobiles and certain automotive parts threaten to impair
inexpensive, source of parts that may compete with
U.S. national security. Under Sec. 232 of the Trade
manufacturers in other countries. In 2018, more than 35
Expansion Act of 1962 (19 U.S.C. § 1862, as amended),
countries sold nearly $160 billion in auto parts in the United
this determination gives the President broad authority to
States.
respond to the threat, including potentially imposing
Since the North American Free Trade Agreement (NAFTA)
unilateral import restrictions. The President is seeking a
went into force, U.S. production growth has been relatively
negotiated solution, instructing the U.S. Trade
steady, except during recessions, rising from 9.7 million
Representative (USTR) to reach agreements with Japan and
vehicles in 1992 to 11.3 million in 2018. At the same time,
the European Union (EU) to address the threat. The USTR
production in South Korea and Mexico also increased,
is to report on its progress within 180 days.
while decreasing in two other major auto-producing
The Trump Administration initiated its investigation on
countries, Japan and Germany. Major distinguishing factors
auto imports on May 23, 2018 (83 FR 24735). The
in the U.S. market during this time include:
Department of Commerce (Commerce), which has statutory
an increase in the number of foreign-owned auto
responsibility for such investigations, submitted its report to
manufacturing plants in the United States from seven
the President on February 17, 2019, but it has not been
in 1992 to 17 in 2018;
made public. According to the President, it concluded that
the growth of Mexico as a source of vehicles for U.S.
U.S. auto imports pose a national security threat because
sales from one million per year when the NAFTA
they affect “American-owned” producers’ global
entered into force in 1994 to four million in 2017;
competitiveness and research and development on which
the doubling of U.S. vehicle exports in recent years to
U.S. military superiority depends. The President’s emphasis
more than 2 million units in 2017; and,
on U.S. ownership implies the Administration sees foreign-
a change in the U.S. fleet composition with a growing
owned automakers operating in the United States as having
U.S. consumer preference for light trucks over
fewer benefits to U.S. national security. Toyota and other
passenger cars: 65% of U.S. sales were light trucks in
Japanese-owned auto firms objected to this view, noting
2017, compared to 50% in 2012. (Some automakers are
significant U.S. investments. According to data from the
now discontinuing production of passenger cars.)
Bureau of Economic Analysis, Japanese firms have
invested over $50 billion dollars in the U.S. auto sector,
Figure 1. Origin of Vehicles sold in U.S.
directly employing 170,000 workers.
The Section 232 investigation is a component of a broader
Administration agenda related to U.S. trade and the auto
industry, including: (1) expanding domestic auto
manufacturing; (2) addressing bilateral trade deficits; and
(3) reducing disparities in U.S. and trading partner tariff
rates. At 2.5%, U.S. passenger auto tariffs are lower than
some trading partners, including the EU, with auto tariffs of
10%. U.S. tariffs on light trucks, including pick-ups and
Source: CRS analysis based on Ward’s Automotive Database, and
sport utility vehicles, are much higher at 25%.
U.S. International Trade Administration import data.
Commerce received more than 2,000 comments on the
Section 232 investigation and held a public hearing in July
U.S. vehicle sales are increasingly composed of imports
2018. Labor union groups generally supported the
(Figure 1), although more than half of imported vehicles
investigation. The U.S. motor vehicle industry has voiced
were manufactured in Canada or Mexico with significant
strong opposition to potential tariffs and had a united
U.S. content, including engines, transmissions, and other
position at the Commerce hearing. Several Members have
components. Some assemblies, such as steering and braking
voiced concern about the investigation and potential tariffs.
systems, cross the border up to six times as plants in the
NAFTA region add components. More than half of U.S.
The U.S. Automotive Industry
imports from Canada and Mexico are produced by General
Motors, Ford, and Fiat-Chrysler.
Integrated Global Supply Chain
Over the past 25 years, the global auto industry has almost
Motor Vehicle Industry Employment and R&D
doubled in size, driven by China’s growth as a major auto
Motor vehicle assembly and parts manufacturing generate
producing and consuming nation, making and selling nearly
significant employment opportunities in almost every U.S.
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Section 232 Auto Investigation
state. Preliminary data from 2018 suggest employment has
addressed auto imports, and the Administration appears to
largely recovered from the 2008-2009 recession. U.S.
be excluding these countries from further Section 232 auto
vehicle assembly and parts manufacturing employed
restrictions. Alongside the proposed U.S.-Mexico-Canada
997,334 workers in 2018, compared with 992,600 in 2007,
Agreement (USCMA) to replace NAFTA, the United States
according to the Bureau of Labor Statistics. About 60% is
released side letters with Mexico and Canada that would
in the manufacture of parts and components.
exempt specified volumes of vehicle, light truck, and auto
Motor vehicle industry research and development (R&D)
part imports from any potential Section 232 tariffs. The
has grown and new technologies and robotics allow
U.S.-South Korea FTA modifications included a delayed
manufacturers to raise productivity and build more vehicles
reduction of U.S. light truck tariffs and broader exemptions
with fewer workers. The vehicle and parts industry spent
from South Korean safety certifications for U.S. auto
$17 billion on R&D in 2015, compared to $12 billion in
exports.
2011, according to National Science Foundation surveys.
Figure 2. U.S. Motor Vehicle and Parts Imports, 2018
Potential Economic Impact
Auto tariffs could have significant effects on the U.S.
economy, depending on their breadth and duration. U.S.
motor vehicle and parts imports from the EU and Japan, the
main targets of the newly mandated negotiations, totaled
nearly $120 billion in 2018 or one-third of total U.S. auto
and parts imports (Figure 2). Economic studies generally
estimate auto tariffs would lower overall U.S. GDP relative
to a baseline without the tariffs, though the magnitude
varies depending on modeling techniques and assumptions.
The IMF, for example, estimated a negative effect ranging
from 0.6%-1% of U.S. GDP if tariffs applied to all U.S.
auto and parts imports (this is a cumulative effect inclusive
Source: Bureau of Economic Analysis, International Transactions.
of Section 301 tariffs on $250 billion of Chinese imports).
Issues for Congress
Economists generally argue that using tariffs to encourage
domestic production can lead to an inefficient and less
Multiple Members have raised concerns about the Section
productive allocation of resources. The uncertainty created
232 auto investigation. Potential issues to consider include:
by the current and potential tariffs on autos and auto parts
National security definition. Many observers question
may also reduce investment. Ultimately, the tariffs could
the linkage between U.S. auto production and national
increase the price of motor vehicles sold in the United
security. Should statutory criteria be clarified to ensure
States, prompting some consumers to delay purchases or
investigations adhere to congressional intent?
purchase used cars instead of new vehicles, and generating
inflationary pressures. The Center for Automotive Research
Trade authority. Proposed legislation would curtail the
estimated that a 25% tariff applied to all vehicles sold
President’s authority under Section 232. What are the
domestically could raise the price of an average car sold in
tradeoffs between restricting the President’s authority
the United States by $4,400. The Peterson Institute for
and expeditiously addressing national security concerns?
International Economics estimated similar price increases.
Economic impact. Tariffs on U.S. imports could
The economic effects could be less significant if potential
significantly increase costs for consumers and firms
tariffs are used largely as short-term negotiating leverage.
using imported parts. Retaliation may also occur. Do the
Estimating the effect of Section 232 auto tariffs on U.S.
potential benefits of the tariffs justify costs?
auto production is complicated by the globally integrated
Foreign vs. U.S. Ownership. How does the ownership
nature of auto supply chains and the spillover effects from
structure of a firm operating in the United States affect
other recent tariff actions. Tariffs on assembled autos could
its contribution to U.S. national security?
make imported vehicles more expensive in the U.S. market,
potentially increasing demand for and production of U.S.-
International trading system. How do unilateral U.S.
made vehicles. Tariffs on auto parts, however, could
actions affect other countries’ adherence to World Trade
counteract this effect by increasing the cost of imported
Organization commitments?
inputs, leading to higher prices of U.S.-produced vehicles.
Trade negotiations. How would the proposed USMCA
U.S. producers already face cost increases resulting from
affect U.S. auto production? Should the Administration
Section 232 U.S. steel and aluminum tariffs and Section
be linking Section 232 national security action to
301 duties on imports from China. Retaliatory tariffs could
broader trade negotiations?
also make U.S.-produced autos less competitive in foreign
markets, leading to a reduction in U.S. exports.
For more information, see CRS Report R45249, Section
Relationship to Trade Negotiations
232 Investigations: Overview and Issues for Congress.
The Administration has stated it is using the threat of tariffs
Rachel F. Fefer, Coordinator, Analyst in International
to create U.S. leverage for broader trade negotiations with
Trade and Finance
the EU and Japan, and that tariffs would not be imposed
while negotiations continue. Recently concluded
Bill Canis, Specialist in Industrial Organization and
negotiations with Mexico, Canada, and South Korea
Business
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Section 232 Auto Investigation
IF10971
Brock R. Williams, Analyst in International Trade and
Finance
Disclaimer
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