December 18, 2018

Trump tariffs will have ‘ripple impact’ on Tennessee auto sector

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With three major auto manufacturing plants and nearly 1,000 auto suppliers scattered across the state, Tennessee has emerged as the primary driver behind the Southeast’s fast-growing automotive industry.

President Trump’s decision to move forward with steel and aluminum tariffs on U.S. allies holds sweeping implications for Tennessee’s booming auto sector.

Commerce Secretary Wilbur Ross said Canada, Mexico and the European Union would be subject to a 25 percent tariff on steel and a 10 percent tariff on aluminum as of midnight on Thursday. European trade officials have previously threatened to retaliate with duties on U.S.-made goods. 

Nearly 1,000 auto suppliers operate in Tennessee and manufacturers built more than 830,000 vehicles in the state in 2016, with exports approaching $6 billion, according to the Tennessee Economic & Community Development office. More than 135,000 Tennesseans work in the auto sector. 

“You are putting a major uncertainty around a significant commodity market,” said Bradley Jackson, CEO of the Tennessee Chamber of Commerce & Industry. “You can imagine some disruption that can occur, and that will have a ripple impact especially in Tennessee with the base that we have for automotive manufacturing.”

Jackson pointed to the auto sector as the state’s main focus for economic growth. As new requirements have been issued on fuel consumption and companies have sought to make vehicles lighter, demand for aluminum has significantly increased in Tennessee.

Automakers “don’t know what to expect,” Jackson said.

U.S. Senator Lamar Alexander (R-Tenn.) denounced the tariffs Thursday and said they would hurt the Tennessee workforce.

“This is a big mistake,” Alexander said in a statement. “These tariffs will raise prices and destroy manufacturing jobs, especially auto jobs, which are one third of all Tennessee manufacturing jobs. I have urged President Trump to focus on reciprocity — do for our country what our country does for you — instead of imposing tariffs, which are basically higher taxes on American consumers.”

Ross said the tariff action was meant to reduce the nation’s trade deficit.

“We believe that this combined package achieves the original objectives that we had set out, which was mainly to constrict the import of steel and aluminum,” he said.

Trump had temporarily excluded allies from the tariffs in March, a move welcomed by European officials. French Finance Minister Bruno Le Maire said Wednesday that the European response to increased tariffs would be “united and firm.” 

FedEx wasn’t commenting Thursday on the new tariff action, but the Memphis-based company’s founder, chairman and chief executive Frederick W. Smith has long been an outspoken advocate of free trade.

“FedEx is concerned about the prospect of increased protectionist tariffs,” Smith told analysts in the company’s last earnings call. “History has shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services and to reduce barriers to trade.”

FedEx doesn’t routinely carry the types of commodity shipments affected by Trump’s planned steel and aluminum tariffs, though it’s a move toward proposed tougher restrictions on Chinese imports, which could strike at the heart of FedEx’s international business. 

Nissan, General Motors Co. and Volkswagen, each with Tennessee operations, did not immediately respond to requests for comment.

John Bozzella, Global Automakers’ CEO, also described the tariff as harmful to U.S. consumers. 

“The President’s decision to impose significant tariffs on steel and aluminum imports from the European Union and our NAFTA trading partners is disappointing and counterproductive,” he said in an emailed statement. “A tariff is a tax and this action will raise prices and hurt American auto producers and their customers. Any retaliation by our trading partners will multiply this harm and do nothing to encourage U.S. exports.”

Earlier this week, the Trump administration announced $50 billion worth of new tariffs on Chinese imports, after officials had earlier said it was “putting the trade war on hold” with Beijing. Ross told reporters Thursday that he still expects to travel to China to continue trade talks this weekend. 

Matt Meenan, senior director of public affairs for the Aluminum Association, said his organization supports trade action on China, but not on the U.S. allies targeted for these particular tariffs.

“The focus of the administration for our industry ought to be very specifically on China and Chinese overcapacity,” Meenan said. “We are not in favor of tariffs or quotas on countries that operate as market economies like the EU or Canada or Mexico or many of our trading partners we rely on for metal.”

The majority of aluminum industry jobs are tied to mid and downstream manufacturing, such as those who roll or extrude metal, Meenan said. He pointed to record demand for aluminum in 2017 and the need for non-U.S. suppliers. 

“The problem comes in the fact that we simply don’t produce enough primary aluminum here in the U.S. to meet that demand,” he said. “You have to fill that gap somehow and the only way you can fill it is by working with partners around the world, who in our view are operating fairly and appropriately.”

Trump last week ordered officials to investigate whether auto tariffs are also required to maintain national security, a move largely seen as a negotiating tactic amid U.S. talks with Canada and Mexico over the drafting of a new North American Free Trade Agreement.  

On Thursday, a spokeswoman for Gov. Bill Haslam did not immediately provide a comment about the latest tariffs but referred to the governor’s previous remarks on the subject.

Discussing the president’s recent proposal to impose tariffs on imported vehicles and parts last week, Haslam said he was “concerned.”

“There’s no question that would mean cost increases for a lot of folks,” he said. “I’m not certain that using the national security reasons to put a tariff on cars is the right path.”

The U.S. imported 34.6 million metric tons of steel last year, a 15 percent increase from 2016, according to the U.S. Department of Commerce. Canada is the largest exporter of steel to the U.S., followed by Brazil, South Korea and Mexico. 

Wayne Risher of the USA Today Network – Tennessee and USA Today contributed to this report. 

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.

Read or Share this story: https://www.tennessean.com/story/money/2018/05/31/trump-tariffs-have-ripple-impact-tennessee-auto-sector/659301002/

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