Recently, President Donald J. Trump threatened to impose tariffs under Sec. 232 of the Trade Expansion Act of 1962 on Canadian Vehicles if Canada does not agree to a new NAFTA deal. This morning, reports indicate that the President intends to replace NAFTA with a bilateral agreement with Mexico. If the trilateral talks fail and the president follows through with his threatened tariffs, don’t get sticker shock the next time you go shopping for an “American” car like a Dodge Charger.
Under Section 232, Congress delegated its Article 1, Section 8 constitutional authority of regulating trade, and imposing tariffs to the President in cases necessitated by national security. Earlier this year, the President used the Section 232 national security tariffs to impose duties on steel and aluminum imported from allies, such as the European Union. However, at that time, the President did not impose tariffs on Canada and Mexico because of The North American Free Trade Agreement (NAFTA). Now the President is suggesting that he will impose tariffs on Canadian vehicles to protect the domestic production of American vehicles if Canada does not quickly conclude NAFTA re-negotiations.
You might ask, “What vehicles are Canadian vehicles?” Canada is not the home of any native automobile companies. Rather, companies such as General Motors, Chrysler, Ford, as well as Toyota and Nissan manufacture some vehicles north of the border. However, under NAFTA rules of origin, if about 62% of the components of a vehicle are produced in the United States, Canada and Mexico, the vehicle qualifies as a North American. As a result, such vehicles would not be subject to duties or tariffs if sold within the NAFTA region. Thanks to an integrated North American supply chain, the automotive industry has been able to foster competitive advantage and specialization within North America, reduce manufacturing costs, and make North American vehicles more cost competitive worldwide.
If the President were to impose a Section 232 national security tariff on Canadian vehicles, it would be passing on a tax to American buyers of the Dodge Charger, Dodge Challenger, Cadillac XTS, among other “Canadian” cars. It is hard to understand what exactly the national security risk is when Americans buy vehicles from venerable brands like Ford, Dodge, and General Motors.
The threat of national security tariffs may just be a tactic to bully Canada to join the new US-Mexico Trade Agreement. But, Congress has the power to prevent the damage that such tariffs would cause the American consumer. Section 232 tariffs represent a power delegated by Congress to the President. Because this is a delegated power, Congress should reclaim its rightful Article 1 authority rather than allowing American consumers to be punished with higher automotive prices.
2018 marks the 60th anniversary of the North American Air Defense Command. Despite decades of military cooperation, this administration would have us believe that the importation of Canadian vehicles is a threat to our national security. Not only is this disrespectful to our allies to the North, this sets a malignant precedent that the slightest economic grievance, even those based on woeful economic understanding, could be viewed as threats to national security. To eliminate room for such abuses, Congress should reclaim its proper constitutional authority and require congressional approval before the imposition of national security tariffs.
Doug McCullough – Director of Lone Star Policy Institute
Published by Foundation for Economic Education Here.
Photo credit: Ed Alexander – www.123rf.com