TradeVistas | section 232 tariffs, imported autos, and tariff authority

Driving Congress to Act on National Security Tariffs

Volkswagen GTI is turbocharged with room for…tariffs?

The Volkswagen Golf GTI is a perennial winner of Car and Driver’s 10Best award. The German-built sport hatchback combines “speed, handling, build quality, an attractive interior, and room for the family,” all for under $30,000. Car and Driver raves about the GTI’s turbocharged engine and notes it’s a formidable challenger to competing “hot hatches.”

Apparently, the U.S. Department of Commerce believes that the GTI poses another challenge — maybe a turbocharged threat to America’s national security.

In a still-confidential 2019 report, the Department reportedly found that imported autos like the GTI “threaten to impair the national security” and recommended that the president impose tariffs as high as 25 percent.

All revved up

The president would enact these tariffs under Section 232 of the Trade Expansion Act of 1962. As TradeVistas’ Andrea Durkin has detailed, Section 232 is a little-used Cold War-era law under which Congress delegated broad authority to the president to restrict imports for national security reasons. The law is also the basis for current controversial duties on steel and aluminum.

The proposed tariffs have generated opposition from vehicle manufacturers, suppliers, economic analysts and members of Congress. The Alliance of Automotive Manufacturers notes that a 25 percent tariff on autos and parts would raise the price of an average imported car by an estimated $6,000 (and add $2,000 to a U.S.-built car) while potentially leading to the loss of over 600,000 American jobs. The Association of Global Automakers (now merged with the Auto Alliance to form the Alliance for Automotive Innovation) questions how passenger cars and light trucks are relevant to national security, suggesting that “America does not go to war in a Ford Fiesta.” Statements from Administration officials suggest that the “national security” justification for auto tariffs may be a pretext to gain negotiating leverage in other contexts.

Sourcing of US Light Vehicle Sales 2017

Congress may put the brakes on Presidential tariffs

With the possible exception of avid inventor Ben Franklin, America’s founders would be astounded by the GTI. They might be equally astonished, however, by the Trump Administration’s assertion of broad authority to impose tariffs. After fighting a revolution against “taxation without representation,” the founders believed it was vital to entrust the power to impose tariffs and other taxes to the people’s representatives. Specifically, Article I, Section 8 of the Constitution vests Congress with the “power to lay and collect taxes [and] duties.”

Since 1934, after its disastrous experience with the Smoot-Hawley tariffs, Congress has increasingly delegated specific trade and tariff powers to the president, subject to a variety of limitations. Presidents have generally used these powers judiciously and to reduce tariffs to expand trade. For example, when President Kennedy signed the 1962 Trade Expansion Act (which enacted Section 232), he emphasized the importance of opening trade and reducing trade barriers and warned against “stagnating behind tariff walls.”

President Trump has taken a maximalist approach to his delegated powers to impose tariffs, particularly for “national security” reasons. In response, Congressional critics from both parties point out that under the Constitution, Congress should be the ultimate driver of tariffs, not the president.

Other concerns with the Administration’s application of national security tariffs include a lack of transparency in determining tariffs and administering tariff exclusions, its use of an overly broad definition of national security, and the cascading impacts on U.S. producers from higher metal prices. Legal experts are also concerned that the Administration did not follow the law when it imposed new tariffs on derivative steel products (including nails and bumpers) and when it extended its review of auto tariffs when time limits under Section 232 have likely expired.

Cost of Autos 232 Tariffs

Time for a trade law tune-up?

Congress could rein in presidential national security tariffs by simply repealing Section 232. However, even critics of current tariffs recognize that there are circumstances where the president might need authority to adjust trade in response to national security threats. Accordingly, Congress has focused instead on bipartisan proposals to place additional limits on the president’s ability to employ Section 232.

The Trade Security Act of 2019, introduced by Senator Rob Portman (R-OH) and Representative Ron Kind (D-WI), would bifurcate the Section 232 process. The Department of Defense (DoD) would first investigate whether there is a national security basis for restricting imports of an article. If DoD finds that an article poses a security threat and the president decides to act, the Commerce Department would then recommend tariffs or other measures to address the threat. The Portman-Kind bill would also enable Congress to disapprove any Section 232 trade restriction imposed by the president through a resolution of disapproval that would itself be subject to a veto by the president. This legislation would not impact current Section 232 tariffs on steel and aluminum.

The Bicameral Congressional Trade Authority Act of 2019, introduced by Senator Pat Toomey (R-PA) and Representative Mike Gallagher (R-WI) would also require DoD to take the lead in investigating whether an article poses a national security threat, while also adopting a tighter definition of national security. Notably, under this legislation, no proposed Section 232 action by the president could take effect unless Congress first passes a resolution of approval. The Toomey-Gallagher bill would also (i) repeal current steel and aluminum duties unless Congress passes an expedited resolution of approval, (ii) direct the independent U.S. International Trade Commission to report to Congress on the economic impacts of Section 232 actions, and (iii) require that the USITC administer the tariff exclusion process for future Section 232 actions.

Two bills in Congress to brake 232

Getting out of neutral

For the past year, Senate Finance Committee Chairman Chuck Grassley (R-IA) has been attempting to meld the Portman and Toomey bills into a compromise measure that would attract veto-proof majorities in Congress. Despite considerable bipartisan support, Grassley notes that this effort has faced two challenges. First, there’s opposition from Republicans who see the legislation as a rebuke of President Trump. Second — as any student of U.S. trade history could have predicted —interests that benefit from new national security tariffs are now lobbying intensely to retain these tariffs. Despite this opposition, Grassley has vowed to continue efforts to enact Section 232 reform in 2020.

More potholes ahead?

Meanwhile, Volkswagen’s GTI and other imported autos will continue to face the threat of national security tariffs. And that threat won’t necessarily subside if a Democratic president takes office next year. Some Democrats have already proposed using the Trump Administration’s expansive reading of Section 232 to advance their own policy goals — particularly to address the climate crisis. Carbon-emitting autos like the GTI would be a prime target for new tariffs.

The GTI was designed for Germany’s smooth, high-speed autobahns. When it comes to U.S. national security tariffs, however, the GTI’s road ahead may continue to be full of potholes.

Author Ed Gerwin is a trade lawyer who also drives a 2017 GTI.