US delays tariffs on imported cars; what does it mean for auto industry?

President Donald Trump has delayed the decision on whether to impose tariffs on imported cars and parts or as long as six months to allow for more time for trade talks with the European Union and Japan. It said, however, Trump agreed with findings that imported vehicles and parts can threaten U.S. national security, a designation likely to anger some U.S. allies.

The decision, at least for now, averts what was shaping up to be a new dramatic escalation in the Trump administration's trade disputes around the world, including a trade war with China. It was not clear what steps Japan and the European Union (EU) would be willing to take to stem vehicle and auto parts exports. Trump had faced a Saturday deadline to make a decision on recommendations by the Commerce Department to protect the U.S. auto industry from imports on national security grounds and imposing tariffs of up to 25 per cent.

Trump directed U.S. Trade Representative Robert Lighthizer to pursue negotiations with the EU, Japan and any other country he deemed appropriate and report back within 180 days. If no deal is reached, Trump will decide by then "whether and what further action needs to be taken." In a proclamation released Friday, Trump said he agreed with a Commerce Department study that found some imported cars and trucks are "weakening our internal economy" and threaten to harm national security.

Automakers warned the tariffs to cost hundreds of thousands of auto jobs, dramatically raise prices on vehicles and threaten industry spending on self-driving cars. The Alliance of Automobile Manufacturers, a trade group representing General Motors Co, Volkswagen AG, Toyota Motor Corp and others, said the companies remained "deeply concerned that the administration continues to consider imposing auto tariffs."

The group said that since 2017 automakers have invested $22.8 billion in new and existing facilities in the United States, but "increased auto tariffs threaten to undo this economic progress. At the end of the day, you can have tariffs or investment, but you can't have both." A revised U.S. trade deal with Mexico and Canada signed in November effectively shields existing imports from the two nations to the United States from national security tariffs.

The auto tariffs face strong opposition in Congress, including from many prominent Republicans. The White House has refused to release the auto import study to Congress. Trump's proclamation said "domestic conditions of competition must be improved by reducing imports" and said a strong U.S. auto sector is vital to U.S. military superiority.

The reports cited statistics that U.S.-owned companies' share of the U.S. automobile market has declined from 67 per cent, or 10.5 million units produced and sold in the United States, in 1985, to 22 per cent, or 3.7 million units produced and sold in the United States, in 2017. At the same time, the Commerce Department report stated that imports nearly doubled - from 4.6 million units to 8.3 million units.

U.S. Commerce Secretary Wilbur Ross told Trump that "successful negotiations could allow American-owned automobile producers to achieve long-term economic viability and increase R&D (research and development) spending to develop cutting-edge technologies that are critical to the defence industry." The report called the European Union and Japan "protected foreign markets" that "impose significant barriers to automotive imports from the United States, severely disadvantaging American-owned producers."

The United States also has barriers to imports, most notably a 25 per cent tariff on pickup trucks from outside North America.

(With inputs from agencies.)