By Victor Reklaitis, MarketWatch
The auto industry and its investors are bracing for a long-awaited Commerce Department report offering recommendations on new tariffs targeting imported vehicles and auto parts.
The report, expected to come as soon as Sunday, was requested in May by President Donald Trump, who at that time was considering new auto tariffs of as much as 25% on national-security grounds.
The 25% levy is still on the table, and it will be one of the options presented in Commerce’s document, according to a report by German magazine WirtschaftsWoche . But the magazine also said there will be two other options — tariffs of 10%, which would match the European Union’s approach, or targeted duties that only would get imposed on certain imports, such as electric cars and their parts.
The potential for the lesser options “could be seen as a positive sign” by anyone hoping for global trade tensions to ease, said Morgan Stanley strategists Michael Zezas and Meredith Pickett in a note to clients.
“Don’t underestimate the risk of auto tariffs,” Zezas and Pickett also wrote. “We expect auto tariffs to be implemented by the summer, but be quickly rolled back, unless market moves change the administration’s views first.”
“We’ll be proven too bearish should efforts in Congress to take back Section 232 authority gain momentum,” the Morgan Stanley duo added, referring to a legal provision of the 1962 Trade Expansion Act that allows for tariffs on imports if they are deemed to threaten national security. The Trump administration used Section 232 to impose levies on imported steel and aluminum.
Democratic and Republican senators have rolled out bills aiming to change how such tariffs get imposed. One bill , introduced by Pennsylvania GOP Sen. Pat Toomey and Virginia Democratic Sen. Mark Warner, would require Congressional approval for any Section 232 levies imposed within the last four years. Another bipartisan measure , backed by Ohio Republican Sen. Rob Portman and others, would give the Defense Department the power to decide whether such tariffs are justified by national-security concerns, rather than Commerce, as well as hand Congress a larger role in the process.
Iowa Republican Sen. Chuck Grassley, who chairs the powerful Senate Finance Committee, has said he supports “recapturing some of the constitutional power that Congress gave away in the 1962 legislation.” Ahead of Commerce’s report, Grassley said “raising tariffs on cars and parts would be a huge tax on consumers who buy or service their cars, whether they are imported or domestically produced.”
“Tariffs are not a long-term solution,” the Iowa lawmaker also said. “While they may provide short-term protection for domestic industries, they do so at the expense of ordinary consumers and industries increasingly dependent on complex global supply chains.”
Trump has 90 days to decide on whether he agrees with Commerce’s findings after the department releases its report, and then he has 15 days to implement his decision, according to the Congressional Research Service . The administration reportedly decided to hold off on auto tariffs in November after discussing a draft version of Commerce’s report.
“The tariffs have been characterized as being aimed at the EU,” but “it is possible that other countries could be affected as well,” said Morgan Stanley’s Zezas and Pickett, referring to the European Union.
Shares in Germany’s three big auto makers have driven lower over the past 12 months, with BMW /zigman2/quotes/202432319/delayed XE:BMW +0.07% /zigman2/quotes/200850296/delayed BMWYY +1.30% down by 19%, Volkswagen /zigman2/quotes/203434344/delayed XE:VOW3 -1.00% off by 13%, and Mercedes parent Daimler /zigman2/quotes/201850364/delayed XE:DAI -0.50% /zigman2/quotes/203566154/delayed DDAIF +3.03% losing 30%. In the same period, the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP +0.17% has dipped by 2%, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% has gained 2%.