President Elect Trump threatened German and Japanese auto manufacturers with lofty tariffs on imported cars that are manufactured in Mexico, as reported by Reuters earlier today. This is ostensibly to encourage these auto-makers not to increase investment in Mexican manufacturing of vehicles meant for US markets, and possibly to impact declining exports of US manufactured vehicles to foreign markets. Is this sort of protectionist trade policy likely to have the desired effect? And can the president impose such a tariff (upwards of 35%)?
On the topic of Presidential authority regarding tariffs, the short answer is – it’s complicated.
Constitutional authority for imposition of tariffs rests specifically with Congress. The President has no direct constitutional authority in this regard, BUT the Congress may delegate authority to the President by statute. There have been many such statutes in the 20th and 21st centuries, normally with specifically limited scope and language indicating that some particular condition must first be met in order for the President to exercise his delegated authority. If one were to review all of the applicable statutes delegating bits of authority over tariffs to the President, one would likely not be 100% certain of whether the President could unilaterally impose a 35% tariff on an auto-manufacturer – though it seems more likely than not that the answer would be “no.” Still, the President could i,pose the tariff without proper authority, and then the Congress would have to challenge the imposition of the tariff, leaving the matter to the courts. If the court did find that the president had overstepped his authority, that could still mean that there would have been many months of an improperly imposed tariff. So the threat is real, even if it is technically outside of the President’s current authority. (For a detailed analysis, please read the linked paper from the Congressional Research Service.)
As a side note, most countries with tariffs as high as our President-Elect is threatening are not exactly what we would consider economic powerhouses.
Regarding whether this move would bring the desired effect – that’s beyond my scope to predict. I will suggest though that it is short-sighted and fails to take into consideration the impact on US jobs connected to these same companies. There are American jobs associated with foreign manufactures in sales, parts manufacturing, repair, etc that would all be impacted by an import-prohibitive tariff. Reuters estimated some 110,000 US jobs associated with German automobiles. The 35% tariff on the exporter would likely lead to an increase in cost to the consumer, which in turn would lower total demand. That lowered demand would negatively impact US employees working with these particular imports. The short term impact might be a better market for US-made vehicles in the US, but US manufacturers are global sellers as well. The intent of the tariff might be to level the playing field, as in this case part of the intent is to coerce foreign manufacturers away from cheaper labor markets in Mexico and to increase exports of US-made cars to foreign markets. Instead, the countries in question may retaliate with exorbitant tariffs of their own. And, meanwhile, PE Trump has promised to impose similar tax liabilities on US manufacturers who off-shore jobs and import parts. The total effect of these types of plans might be to make US manufacturers unable to compete both globally AND in the US, as foreign manufacturers have the flexibility to look for new global labor markets to offset our high tariffs while our own companies would not.
I’m not an economics expert, so I’m happy to have any input from those who know better. But from my armchair, this seems like a portion of an overall poor economic strategy for the US.