U.S. President Donald Trump gestures while speaking during a lunch meeting with Republican lawmakers in the Cabinet Room of the White House in Washington, D.C., U.S. (Photographer: Al Drago/Bloomberg)

Trump Mulls 6-Month Window for EU, Japan to Curb Auto Sales

(Bloomberg) -- President Donald Trump will give the EU and Japan 180 days to agree to a deal that would “limit or restrict” imports into the U.S. of automobiles and their parts in return for delaying new auto tariffs, according to a draft executive order seen by Bloomberg.

According to the order, which people familiar with the matter say Trump is expected to sign this week, the administration has determined that imports of cars into the U.S. present a threat to national security because they have hurt domestic producers and their ability to invest in new technologies.

Shares of BMW AG surged as much as 5% Wednesday, while Japanese automakers were traded slightly lower in Tokyo. Korean automakers including Kia Motors Corp. advanced in early trading.

The proclamation will exempt South Korea from any future tariffs because it renegotiated the U.S.-Korea Free Trade Agreement, or KORUS, last year. Korean officials for months have lobbied the White House for an exemption of the potential tariffs but USTR wouldn’t commit to agreeing on one.

A report by the Commerce Department had found that America’s innovation capacity “is now at serious risk as imports continue to displace American-owned production.” Trump was facing a May 18 deadline to make a decision on auto tariffs. “The lag in R&D expenditures by American-owned firms is weakening innovation and, accordingly, threatening to impair our national security,’’ according to the draft executive order.

Spokespeople for U.S. Trade Representative Robert Lighthizer and Commerce Secretary Wilbur Ross did not immediately respond to a request for comment.

As reported by Bloomberg News earlier on Wednesday, Trump will refrain from imposing tariffs for up to six months as trade negotiations with the EU and Japan are underway.

U.S.-Japan Talks

Japanese Chief Cabinet Secretary Yoshihide Suga noted Thursday that when Japan and the U.S. agreed last year to open bilateral trade talks, the U.S. pledged not to impose auto tariffs while talks were under way.

“At the Japan-U.S. summit last September, Prime Minister Abe confirmed directly with President Trump that while trade talks are going on no actions will be taken against the spirit of the joint statement, and additional tariffs will not be imposed under Section 232 on cars or car parts,” Suga said.

As talks proceed, the U.S. appears poised to add pressure on Japan. So far the U.S. position on autos has been unclear, but it’s easy now to envision that the U.S. will demand Japan agree to limit auto shipments to the U.S. the same way that Mexico and Canada did, said Junichi Sugawara, senior research officer at Mizuho Research Institute.

"Plus, Japan now has the 180-day limit, so it’s not a good development for Japan," Sugawara said.

Quota Concerns

Japanese and European officials have made clear a quota arrangement like the one that Mexico and Canada agreed to in the new Nafta is a red line for them. The U.S. is in talks with both trading partners, but autos are not currently part of discussions with the EU.

The U.S. imported $191.7 billion in passenger vehicles and light trucks in 2018 with more than $90 billion of those imports coming from Canada and Mexico, which are duty-free under Nafta. Passenger cars are now subject to a 2.5% U.S. tariff but Trump has threatened to raise that to 25%, arguing that the EU and other countries have higher barriers to U.S. auto exports.

American allies Mexico, Canada, Japan and Germany are the leading sources of imported cars and trucks.

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