Section 232 Auto Investigation

Section 232 Auto Investigation

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Updated January 31, 2020
Section 232 Auto Investigation
Background
producing and consuming nation, making and selling 25
On May 17, 2019, President Trump announced his
million vehicles in 2019. General Motors sells more
Administration’s determination that U.S. imports of
vehicles in China than in the United States. China’s rise in
automobiles and certain automotive parts threaten to impair
vehicle and parts manufacturing has added a new, often
U.S. national security. Under Section 232 of the Trade
inexpensive, source of parts that may compete with
Expansion Act of 1962 (19 U.S.C. §1862, as amended), this
manufacturers in other countries. In 2018, more than 35
determination gives the President broad authority to
countries sold nearly $160 billion in auto parts in the United
respond to the threat, including potentially imposing
States.
unilateral import restrictions. Some analysts debate,
however, whether the Administration’s authority under this
Since the North American Free Trade Agreement (NAFTA)
went into force, U.S. production growth has been relatively
investigation has now expired, given statutory timelines for
steady, except during recessions, rising from 9.7 million
action. The President has instructed the U.S. Trade
vehicles in 1992 to 11.3 million in 2018. At the same time,
Representative (USTR) to negotiate agreements with Japan,
production in South Korea and Mexico also increased,
the European Union (EU), and others, as needed, to address
while decreasing in two other major auto-producing
U.S. concerns.
countries, Japan and Germany. Major distinguishing factors
The Trump Administration initiated its investigation on
in the U.S. market during this time include:
auto imports on May 23, 2018 (83 FR 24735). The
 an increase in the number of foreign-owned auto
Department of Commerce (Commerce), which has statutory
manufacturing plants in the United States from seven in
responsibility for such investigations, submitted its report to
1992 to 18 in 2019;
the President on February 17, 2019, but it has not been
 the growth of Mexico as a source of vehicles for U.S.
made public. According to the President, the report
sales from 1 million per year when the NAFTA entered
concluded that U.S. auto imports pose a national security
into force in 1994 to 4 million in 2018;
threat because they affect “American-owned” producers’
 the doubling of U.S. vehicle exports in recent years to
global competitiveness and research and development on
nearly 2 million units in 2018; and,
which U.S. military superiority depends. The President’s
 a change in the U.S. fleet composition with a growing
emphasis on U.S. ownership implies the Administration
U.S. consumer preference for light trucks over
sees foreign-owned automakers operating in the United
passenger cars: 69% of U.S. sales were light trucks in
States as having fewer benefits to U.S. national security.
2018, compared to 50% in 2012. (Some automakers are
Toyota and other Japanese-owned auto manufacturers
now discontinuing production of passenger cars.)
objected to this view, noting significant U.S. investments.
According to data from the Bureau of Economic Analysis,
Figure 1. Origin of Vehicles sold in U.S.
foreign firms have invested over $114 billion in the U.S.
auto sector, directly employing 435,000 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
Source: CRS analysis based on Ward’s Automotive Database, and
10%. U.S. tariffs on light trucks, including pick-ups and
U.S. International Trade Administration import data.
sport utility vehicles, are much higher at 25%.
U.S. vehicle sales are increasingly composed of imports
Commerce received public comments and held a public
(Figure 1), although more than half of imported vehicles
hearing as it assessed the security threat raised by imported
were manufactured in Canada or Mexico with significant
autos and parts. Labor union groups generally supported the
U.S. content, including engines, transmissions, and other
investigation. The U.S. motor vehicle industry has voiced
components. Some assemblies, such as steering and braking
strong and united opposition to potential tariffs, and several
systems, cross the border up to six times as plants
Members of Congress have voiced concerns.
throughout North America add components. More than half
The U.S. Automotive Industry
of U.S. 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
doubled in size, driven by China’s growth as a major auto
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Section 232 Auto Investigation
Motor Vehicle Industry Employment and R&D
Administration appears to be excluding these countries
Motor vehicle assembly and parts manufacturing generate
from future Section 232 auto restrictions, explicitly in the
significant employment opportunities in almost every U.S.
case of Canada and Mexico. Alongside the new U.S.-
state. Preliminary data from 2018 suggest employment has
Mexico-Canada Agreement (USMCA) that replaces
largely recovered from the 2008-2009 recession. U.S.
NAFTA, the United States released side letters with Mexico
vehicle assembly and parts manufacturing employed
and Canada that would exempt specified volumes of
991,400 workers in 2019, compared with 994,200 in 2007,
vehicle, light truck, and auto part imports from any
according to the Bureau of Labor Statistics. About 60% is
potential Section 232 tariffs. The U.S.-South Korea FTA
in the manufacture of parts and components.
modifications included a delayed reduction of U.S. light
truck tariffs and broader exemptions from South Korean
Motor vehicle industry research and development (R&D)
safety certifications for U.S. auto exports. The “stage one”
has grown and new technologies and robotics allow
agreement with Japan did not cover autos, but the
manufacturers to raise productivity and build more vehicles
Administration has stated it has no intent at this time to
with fewer workers. The vehicle and parts industry spent
move forward with additional auto tariffs on Japan.
$17 billion on R&D in 2015, compared to $12 billion in
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, the
Administration’s current focus, totaled more than $63
billion in 2018 and was the second largest source of such
imports after Mexico (Figure 2). Economic studies
generally estimate auto tariffs would lower overall U.S.
GDP relative to a baseline without the tariffs, though the
magnitude depends on modeling and assumptions.

Source: Bureau of Economic Analysis, International Transactions.
Economists generally argue that using tariffs to encourage
domestic production can lead to an inefficient and less
Issues for Congress
productive allocation of resources. The uncertainty created
Several Members have raised concerns about the Section
by the current and potential tariffs on autos and auto parts
232 auto investigation. Potential issues to consider include:
may also reduce investment. Ultimately, the tariffs could
increase the price of motor vehicles sold in the United
 Transparency. The Administration has not complied
States, prompting some consumers to delay purchases or
with congressional requests and statutory requirements
purchase used cars instead of new vehicles, and generating
to release the auto investigation report, citing executive
inflationary pressures. The Center for Automotive Research
privilege due to ongoing negotiations, presumably with
estimated that a 25% tariff applied to all vehicles sold
the EU. What impact does the lack of transparency have
domestically could raise the price of an average car sold in
on congressional oversight?
the United States by $4,400. The Peterson Institute for

International Economics estimated similar price increases.
Trade authority. Proposed legislation would curtail the
President’s authority under Section 232. What are the
The economic effects could be less significant if potential
tradeoffs between restricting the President’s authority
tariffs are used largely as short-term negotiating leverage.
and expeditiously addressing national security concerns?
Estimating the effect of Section 232 auto tariffs on U.S.
Do existing statutory time limits on Section 232
auto production is complicated by the globally integrated
authority require modification or clarification?
nature of auto supply chains and the spillover effects from

other recent tariff actions. Tariffs on assembled autos could
National security definition. Many observers question
the linkage between U.S. auto production and national
make imported vehicles more expensive in the U.S. market,
potentially increasing demand for and production of U.S.-
security. Should statutory criteria be clarified to ensure
made vehicles. Tariffs on auto parts, however, could
investigations adhere to congressional intent?
counteract this effect by increasing the cost of imported
 Economic impact. Tariffs could significantly increase
inputs, leading to higher prices of U.S.-produced vehicles.
costs for consumers and firms and retaliation could lead
U.S. producers already face cost increases resulting from
to export declines. Do potential benefits justify costs?
Section 232 U.S. steel and aluminum tariffs and Section

301 duties on imports from China. Retaliatory tariffs could
International trading system. How do unilateral U.S.
also make U.S.-produced autos less competitive in foreign
actions affect other countries’ adherence to World Trade
markets, leading to a reduction in U.S. exports.
Organization commitments or their willingness to enter
trade negotiations with the United States?
Relationship to Trade Negotiations
For more information, see CRS Report R45249, Section
The Administration has stated it is using the threat of tariffs
232 Investigations: Overview and Issues for Congress.
to create U.S. leverage for broader trade negotiations, such
as with the EU, and that tariffs would not be imposed while
Rachel F. Fefer, Coordinator, Analyst in International
negotiations continue. Due to the conclusion of negotiations
Trade and Finance
with Mexico, Canada, Japan, and South Korea, the
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Section 232 Auto Investigation

Brock R. Williams, Analyst in International Trade and
Bill Canis, Specialist in Industrial Organization and
Finance
Business
IF10971

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https://crsreports.congress.gov | IF10971 · VERSION 8 · UPDATED