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In the latest round of Trade War rhetoric is a question that has ended up in the courts, when is a passenger van really a cargo van and does this tariff engineering really justify getting around the 25% chicken tax? In response to President Donald Trump's tariff war, automakers are find interesting ways to play the grey area of the legal system. According to BNN Bloomberg and Bloomberg news, trade attorneys are closely watching the Ford Motor Co. legal case play out in federal court. This case deals with the importation of passenger vans that are then stripped down once they clear customs and sold as cargo vans. The difference here is that Ford pays 2.5% import duty on passenger vans versus te 25% import duty on light trucks / cargo vans. This challenge against Ford brought by U.S. Customs is challenging the practice of tariff engineering. The art of building a product one way, then changing it once cleared by customs for another use. With all the increased tariffs imposed by the Trump administration this could have critical impact on a region that many automakers have used to bring in a profitable product for market needs. According to the news stories, a ruling by the Court of International Trade ruled in Ford's favor in 2017 but is being challenged by the administration in the U.S. Court of Appeals. Regardless if the U.S. and China come to terms for a new trade agreement, there are no promises that the in place tariffs would be repealed. Ford's argument is that tariff engineering is a legitimate maneuvers for firms exploring ways to mitigate duties by project reclassification, shifting production to other countries which changes the origins of product assembly. Trade lawyers across the country say this case will help establish legal guidelines for tariff engineering. To quote the story from BNN Bloomberg: The U.S. Court of International Trade has stated that under the well-established customs law, manufacturers can intentionally make a product that can avoid higher tariffs with simple changes. What cannot be done is situations such as hiding a higher quality product in a lower quality product like high grade tobacco inside a case of lower grade tobacco. This case has come down to the wording on the import paperwork of "principally designed for the transport of persons". The current administration says this is a scheme for avoiding taxes and local jobs. Ford argues that the goods must be classified in their condition as imported, regardless of later alterations and ended use by consumers. Appeals court is expected to rule in the coming weeks. View full article

Back i n May, the U.S. Commerce Department launched an investigation into car imports to determine the impact of car imports. The investigation falls under Section 232 of the Trade Expansion Act of 1962 which states "whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security." This could allow the Trump administration to levy tariffs as high as 25 percent on foreign-built vehicles. Yesterday, the Commerce Department submitted their draft report into the investigation. The Trump administration has 90 days to determine whether or not to move forward on various measures such as implementing tariffs if the report concludes that imports are a security threat. But Bloomberg is reporting that the administration is holding off on imposing new tariffs. Two sources tell the publication that top officials are considering revising plans due to the report. The sources also said that the report "would be subject to further changes." President Trump has been using the threat of tariffs as leverage during negotiations with trade partners. Already, Trump has promised not to impose any auto tariffs on Europe while the two work on a new trade deal. But a number of foreign governments and companies have said the tariffs would cause more harm. The National Automobile Dealers Association estimates tariffs would add $2,270 to the cost of U.S.-built vehicles and $6,875 to the cost of imported vehicles. It doesn't help that many in Trump's senior economic team believe slapping tariffs on imported cars is a bad idea. According to a report from Axios yesterday, "about every member of his senior economic team besides Peter Navarro believes this is a terrible idea." View full article

While the Trump administration is still deciding whether or not to put tariffs on imported vehicles, certain automakers are bracing for the worst. During a briefing in Tokyo, Subaru is predicting a "big impact" if the U.S. does put tariffs into place. “It’s a fact that there would be a big impact from a U.S. tariff increase. We’re studying what the impact might be but there are too many unknowns at this point, so we want to refrain from giving a specific figure,” said Toshiaki Okada, Subaru's Chief Financial Officer. Of the 670,900 vehicles it sold in the U.S. through the year that ended in March, about half were imported, including the Forester. The rest of the vehicles - Legacy, Outback, and Ascent - are built in Indiana. According to data gathered by Bloomberg, Subaru would be the hardest hit by tariffs as over 67 percent of their revenues from North America. This is more than Honda (52.5 percent), Nissan (48.9 percent), and Toyota (35.2 percent). Source: Bloomberg View full article

Automakers already have enough of a headache with the current administration in the white house, but news that broke today is only going to make it even worse. Wilbur Ross, the U.S. Secretary of Commerce has announced that President Donald ordered an investigation under Section 232 of the Trade Expansion Act of 1962 to determine "whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security." "There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry. The Department of Commerce will conduct a thorough, fair and transparent investigation into whether such imports are weakening our internal economy," said Ross in a statement. There's also this interesting bit in the statement, The Wall Street Journal reported yesterday that tariffs as high as 25 percent could be slapped on new cars. Currently, the tariff on imported vehicles is at 2.5 percent. Imported trucks are already hit with a 25 percent tariff via the chicken tax. There are a couple likely reasons for this investigation, Mid-term elections are coming up and this is seen as a way to court voters in the heartland with the promise of bringing back jobs to the U.S. Possibly being used as leverage in negotiations with Canada and Mexico over the North American Free Trade Agreement (NAFTA); the European Union, and China. This investigation could hurt Mexico the most as they are the largest source of U.S. auto imports - delivering just under $50 billion of imports last year. As for automakers, Bloomberg reports that Jaguar Land Rover, Mazda, and Mitsubishi would be the most affected as all of their vehicles are imported. The news sent the stock prices of foreign automakers downward. Shares in Mazda dropped 5.2 percent at the close of trade in Japan, while Daimler and BMW saw their stock price drop more than two percent. This announcement has gotten condemnation from various governments, trade groups, analysts, and automakers. Here are just a few. "China opposes the abuse of national security clauses, which will seriously damage multilateral trade systems and disrupt normal international trade order," said Gao Feng, spokesman at the Ministry of Commerce in China during a regular press briefing. "We will closely monitor the situation under the U.S. probe and fully evaluate the possible impact and resolutely defend our own legitimate interests." “We have to consider this as something of a provocation. I have the growing impression that the U.S. no longer believes in the competition of ideas, but only the law of power. It fills me with grave concern,” said Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry. “The U.S. auto industry is thriving and growing. To our knowledge, no one is asking for this protection. This path leads inevitably to fewer choices and higher prices for cars and trucks in America,” said John Bozzella, CEO of the Association of Global Automakers, a trade group that represents Hyundai, Nissan, Toyota, and others. Source: Automotive News (Subscription Required), Bloomberg, Reuters, Wall Street Journal (Subscription Required), U.S. Department of Commerce U.S. Department of Commerce Initiates Section 232 Investigation into Auto Imports Today, following a conversation with President Donald J. Trump, U.S. Secretary of Commerce Wilbur Ross initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended. The investigation will determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security as defined in Section 232. Secretary Ross sent a letter to Secretary of Defense James Mattis informing him of the investigation. “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” said Secretary Ross. “The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.” During the past 20 years, imports of passenger vehicles have grown from 32 percent of cars sold in the United States to 48 percent. From 1990 to 2017, employment in motor vehicle production declined by 22 percent, even though Americans are continuing to purchase automobiles at record levels. Now, American owned vehicle manufacturers in the United States account for only 20 percent of global research and development in the automobile sector, and American auto part manufacturers account for only 7 percent in that industry. Automobile manufacturing has long been a significant source of American technological innovation. This investigation will consider whether the decline of domestic automobile and automotive parts production threatens to weaken the internal economy of the United States, including by potentially reducing research, development, and jobs for skilled workers in connected vehicle systems, autonomous vehicles, fuel cells, electric motors and storage, advanced manufacturing processes, and other cutting-edge technologies. Following today’s announcement, the Department of Commerce will investigate these and other issues to determine whether imports of automobiles and automotive parts threaten to impair the national security. A notice will be published shortly in the Federal Register announcing a hearing date and inviting comment from industry and the public to assist in the investigation. View full article