Corker: Trump on ‘dangerous course’ with car tariffs Presented by Semiconductor Industry Association

With help from Doug Palmer, Adam Behsudi and Sabrina Rodriguez

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CORKER: TRUMP ON ‘DANGEROUS COURSE’ WITH CAR TARIFFS: President Donald Trump’s decision to have the Commerce Department launch a Section 232 investigation examining whether auto imports pose a national security threat prompted a new call for Congress to take action to rein in the White House’s ability to unilaterally raise tariffs — a call even Republican lawmakers sound like they could answer.

“I am very concerned about the president abusing the authorities granted to him in Section 232 of the Trade Expansion Act of 1962,” Senate Foreign Relations Committee Chairman Bob Corker said Thursday. Corker’s state is home to GM, Nissan and Volkswagen production facilities. “There is no reason to use this provision to consider imposing tariffs on the automobile industry, and this appears to be either an attempt to affect domestic politics ahead of the election or for some other transactional purpose regarding ongoing trade discussions. This is a dangerous course and should be abandoned immediately.”

Others in the GOP also panned the decision, with Senate Finance Chairman Orrin Hatch (R-Utah) calling the investigation “deeply misguided” and Sen. Pat Toomey (R-Pa.) warning the move “invites retaliation.”

The new probe is just another example of why Congress “should have a chance to review these tariffs before they take effect,” said Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative. Raising tariffs on imported cars “makes no economic sense,” he said.

Major business groups — including the U.S. Chamber of Commerce, National Association of Manufacturers and Business Roundtable — also criticized the move as an abuse of the Section 232 statute. For more reaction to Trump’s latest trade move, click here.

IT’S FRIDAY, MAY 25! Welcome to Morning Trade, where your host is puppy-sitting her brother’s three-month-old lab this weekend. I love dogs and I always say I wish I had my own but man, these little rascals really do dominate your life, don’t they? We’ve only been together 12 hours, for example, and I’m already letting Bodie dictate what and when and where I eat. Any trade tips out there to remind me of my life outside of canine-watching? Let me know: [email protected] and @mmcassella.

POLITICO and the South China Morning Post are partnering to expand coverage of U.S.-China relations. Read our note from POLITICO Editor-in-Chief John Harris and Editor Carrie Budoff Brown to learn more.

CAR TARIFF THREAT DRAWS FIRE OVERSEAS: Trump’s probe drew criticism from top trading partners, already annoyed by his decision to impose new tariffs or quotas on steel and aluminum imports. China, which reached a preliminary deal with Trump last week to tamp down trade tensions, showed its irritation, even though it is not currently a major auto exporter.

“China opposes the U.S.’s abuse of trade policy in the name of national security,” said China’s Commerce Ministry spokesman, Gao Feng. “This will severely undermine the global trading system and disrupt the multilateral trade order.”

European Union officials expressed both concern and frustration with Trump’s latest move, which comes as the EU is already insisting that it be permanently excluded from the steel and aluminum duties. “Let’s see where this investigation leads. As far as we can see, this is something that would be against WTO rules,” EU Trade Commissioner Cecilia Malmström said Thursday in Brussels.

The Trump administration temporarily exempted the European Union, Canada and Mexico from the steel and aluminum tariffs to give each of them time to negotiate a different way of addressing U.S. concerns, most likely through a quota on their exports.

Both Canada and Mexico hope to get a permanent exemption as part of the ongoing NAFTA talks, while the EU has offered to negotiate with the United States over its auto tariffs and other trade issues in exchange for the United States dropping its steel and aluminum tariffs.

“We believe that there is no justification for the U.S. to impose tariffs on steel and aluminum on grounds of national security. Invoking national security would be even more farfetched in the case of the car industry,” an EU Commission spokesman said.

THE NEW 232’S NAFTA EFFECT: European Union officials said Thursday they were surprised by Trump’s decision to launch the auto probe and confused as to who the U.S. was actually aiming at, wondering whether the president had the NAFTA talks or German auto exports in mind. But Canadian Prime Minister Justin Trudeau appeared far more certain: “We know that this is very much linked to ongoing negotiations around moving forward on NAFTA,” he told Reuters in an interview Thursday.

Canadian Foreign Minister Chrystia Freeland, who leads the NAFTA talks for Canada, did not go as far as her boss but did emphasize that the investigation is and will remain “absolutely separate” from the NAFTA talks, where cars have been a central point of contention. She also criticized the idea that Canadian car imports — which are often comprised of U.S. parts and cross the border several times throughout the production process — could pose a U.S. national security threat, calling it “frankly absurd.” More from her here.

Mexico’s chief NAFTA negotiator, Kenneth Smith Ramos, took to Twitter on Thursday to emphasize that the regional automotive sector “is one of the great #NAFTA success stories.” Smith Ramos went on to explain the intertwined U.S. and Mexico supply chain — the two countries are each other’s No. 1 auto parts supplier. The U.S. auto industry’s GDP and exports have grown significantly in recent years, while Mexico has also become the fourth-largest auto exporter in the world, he said.

“Conclusion: #trade is not a zero-sum game! We all win with #NAFTA,” Smith Ramos tweeted.

What kind of car is it? “The whole notion that within North America there’s imports and exports is just not good for business or the region,” a source close to the NAFTA talks told Morning Trade. “That’s not the way the region is going to move forward. So, any notion that the U.S. would go after a Mexican car would be a huge mistake because these are North American cars.”

THE AUTO NUMBERS GAME: The justification for whether automotive imports pose a national security threat may become somewhat tenuous when viewed strictly through the lens of import and export trade data, according to analysis from Panjiva.

The global trade data and analysis firm looked first at anti-dumping and countervailing duty cases that have been filed since January 2016 and found that 19 of the 46 cases related to steel and aluminum products, whereas only four of those were related to automotive products — and two of those four were steel. “That would not suggest the industry is facing the same pressures that metals have,” the firm, which is part of S&P Global Market Intelligence, wrote in its analysis.

The firm also considered that the administration could use the option of limiting imports under what’s known as Section 201, or a safeguard review, which allows action to be taken if there is proof of a sudden and unexpected increase in foreign imports.

The Trump administration successfully used that tool earlier this year to curb imports of solar panels and washing machines — but using it legally would require proof of an influx of cars that doesn’t show up in the data. Panjiva’s numbers show that there has been no evidence of a surge, and that first-quarter imports this year were actually 2 percent lower than the same time period a year earlier.

AUTO WORKERS TREAD CAUTIOUSLY ON 232 PROBE: The head of the United Auto Workers union said Thursday that he was generally in favor of the decision to open an investigation determining whether to limit foreign imports of cars and car parts, though he was careful to say that he was not 100 percent behind it at the moment “because I don’t know what all those mechanics are yet.”

Dennis Williams, who leads the union of 430,000 members, said American workers have been getting the "short end of the stick" on trade for many years but acknowledged that his analysts are looking at the effects any import restrictions might have on the industry.

"I welcome the fact that they are investigating this and they are even considering the tariffs if they need to be done, but I'm cautious about tariffs because we do exporting as well in the agricultural and other fields," he said. "So we have to be careful that it's balanced." Adam has more here.

Memory lane: It’s worth remembering that unions also cheered the national security investigations of steel and aluminum imports when they first started, but they quickly grew disenchanted with the administration after results of the probes were delayed for several months. The United Steelworkers, for one, said steel imports surged in the months after Commerce began investigating whether to impose restrictions, which in turn was “devastating” to domestic industry.

If the same pattern holds, the auto industry could see a surge of imports of cars, trucks and auto parts as suppliers try to pre-empt forthcoming duties.

Ford, GM cautious: The American Automotive Policy Council, which represents Ford, GM and Fiat Chrysler Automobiles, also tiptoed around the announcement, not endorsing nor opposing it. “We will follow this process closely, share our views with the administration and continue to work with them to open foreign markets for U.S.-built products and level the international trade playing field,” said the group’s president, Matt Blunt.

DEMOCRATS CALL FOR A CHINA HEARING: The 16 Democratic members of the House Ways and Means Committee are calling on Chairman Kevin Brady (R-Texas) to hold hearings with members of the administration on the status and direction of U.S.-China trade talks. In a letter to Brady sent on Thursday, the lawmakers complained that they “have had to rely on press reports” to gain insight into high-level trade meetings among officials from both countries over the past month.

They also highlighted a handful of instances where Trump administration officials made comments shortly after one another in which they offered contradictory assessments of where things currently stand and where they are headed next. And they expressed concern with the decision to have Treasury Secretary Steven Mnuchin lead the trade delegation to China and Commerce Secretary Wilbur Ross negotiate further details, as trade statute dictates that U.S. Trade Representative Robert Lighthizer should be the one to lead all international trade negotiations.

“This is unacceptable for basic constitutional and congressional institutional reasons. It is also unacceptable because press reports indicate an increasingly baffling set of circumstances and developments,” they wrote. “Isn't it time for this committee to bring in representatives of the U.S. administration so that we can hear from them directly, and so that they can listen to our views?”

CFIUS OVERHAUL BILL GETS A RIDE ON SENATE DEFENSE LEGISLATION: A Senate bill that would expand the powers of the Committee on Foreign Investment in the U.S. has been attached to the upper chamber’s version of the must-pass National Defense Authorization Act. The action happened during a closed-door markup in the Senate Armed Services Committee on Wednesday, Sen. Tim Scott (R-S.C.) told Pro Financial Services’ Zachary Warmbrodt.

Scott said the CIFUS overhaul (the Foreign Investment Risk Review Modernization Act of 2018) attached as an amendment to the NDAA was the same legislation the Senate Banking Committee approved on Tuesday.

In an interview, Scott said the idea arose from a back-and-forth he had six weeks ago with Defense Secretary Jim Mattis about China's acquisition of U.S. intellectual property. Earlier this month, Mattis called on the House and Senate Armed Services committees to include CFIUS legislation in the upcoming NDAA update.

"We were talking about the importance of pushing back against China," Scott said.

A ZTE angle: Having the NDAA serve as a vehicle could give some momentum to a measure that would prohibit Trump from rolling back sanctions on ZTE and other Chinese telecommunication companies unless certain requirements are met. Senate Banking members approved that provision as an amendment to the CFIUS bill when it passed out of committee.

A different story in the House: The House version of the Foreign Investment Risk Review Modernization Act also passed out of committee this week but does not include any language on ZTE, although the House Appropriations Committee did make a statement on Trump’s treatment of the Chinese company by including a provision to uphold sanctions against the Chinese phone maker in a spending bill.

Financial Services Chairman Jeb Hensarling, who secured a unanimous vote on his committee's CFIUS bill this week, said in an interview he's not comfortable with the Senate counterpart being attached to the defense policy bill.

"I'll have to see how the whole thing unfolds in the Senate," he said. "I'm just glad in the House that we've kept them separate as they needed to be."

EU SAYS IT HAS COMPLIED WITH WTO RULING ON AIRBUS: After a WTO panel ruled last week that the European Union still had not fully complied with several decisions against its support programs for Airbus, Lighthizer demanded the EU take swift action or face potential retaliation.

But, according to the EU, it has. “The European Union would like to inform the [WTO Dispute Settlement Body] that it has taken appropriate steps to bring its measures fully into conformity with its WTO obligations, and to comply with the DSB's recommendations and rulings,” the EU said in a document dated May 18 and just recently posted on the WTO website.

The new paper sets the stage for Monday’s DSB meeting, where members are expected to formally adopt the latest ruling against the EU. Once that happens, the United States can ask the WTO to determine how much retaliation it can impose on the European exports for subsidy programs that Washington says are still benefiting Airbus.

TRADE REMEDY CORNER, STAPLE FIBER EDITION: The Commerce Department has found evidence of dumping of fine denier polyester staple fibers from China, India, South Korea and Taiwan, ruling that imports of the product are being sold at less than fair value in the United States. In its final ruling, Commerce imposed anti-dumping duties of 21.43 percent on imports from India, up to 45.23 percent on those from South Korea, 48.86 percent on Taiwan and between 65.17 percent and 103.06 percent on China.

Imports of the product last year from China, India, Korea, and Taiwan were valued at around $61.4 million, $23.7 million, $11.9 million, and $7.4 million, respectively. The case will now head to the U.S. International Trade Commission for final approval, which is expected by July 9.

INTERNATIONAL OVERNIGHT

— A spokesman for Mexican President Enrique Peña Nieto says Mexico will not buckle under pressure to renegotiate NAFTA, Reuters reports.

— Alliance for American Manufacturing President Scott Paul warns in a New York Times op-ed that Trump is squandering the best chance the U.S. had to remake its bilateral trade relationship with China.

— A Brazilian farm minister warns that any U.S.-China trade dispute could harm Brazil in the long run, Reuters reports.

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