U.S. Looks to Protect Domestic Car Makers From Foreign Competition

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The Trump administration is pursuing ways to protect domestic vehicle manufacturing by forcing imported cars to meet stricter environmental rules when entering the country, according to senior administration and industry officials, a move that would make imports more expensive.

The cost of meeting the stiffer import standards would, at least in part, be passed along to U.S. consumers. This style of “nontariff barrier”—a protectionist stratagem the U.S. has long condemned in other countries—is designed to reduce the relative cost of cars manufactured in the U.S., by American workers, the officials said.

Mr. Trump has asked the Environmental Protection Agency and several other agencies, including the Commerce and Transportation departments, to pursue plans to use such laws as the Clean Air Act to subject cars made overseas to strict emissions-standards testing and reviews when entering the U.S. The rules could effectively require more expensive technology on some foreign cars or subject those cars to more expensive hurdles that can be billed to the manufacturer or importer.

Either option would likely raise the costs for foreign cars sold in the U.S., making domestically produced cars cheaper by comparison. This effect of raising prices on consumers is common to most nontariff barriers, which seek to penalize imports through measures other than tariffs or duties.

The initiative remains in the planning stages and still faces hurdles to implementation. EPA officials are working now to craft a legal justification that would meet a high requirement of legal rationale, given any proposal is expected to draw lawsuits. Some in the administration see the idea as too radical, and the considerable legal challenges have already delayed the plan.

The White House didn’t respond to a request for comment.

Behind some of the administration’s thinking is a recent scandal at

Volkswagen
AG

, which has 3.5% of the U.S. market. The German auto giant admitted to cheating on meeting standards limiting air pollution from tailpipes in vehicles with diesel engines. The EPA is exploring whether that scandal gives it legal justification under the Clean Air Act to set tougher rules, though it is also pursuing other alternatives that would have a broader impact.

“Reports that the president has requested input from his cabinet on possible nontariff barriers for vehicle imports to the U.S. is a bad idea and a pretext for protectionism,” said John Bozzella, head of Washington lobbying group Global Automakers and spokesman for Here for America, a coalition of companies including Volkswagen,

BMW
AG

and

Daimler
AG’s

Mercedes-Benz.

“It will increase prices for consumers and invite retaliatory actions by other countries,” Mr. Bozzella said. “It is ironic the United States now appears to be legitimizing nontariff barriers after working for decades to dismantle them when used by our trading partners. We ask the president to immediately reconsider this action.”

The EPA this week moved to ease emissions standards for vehicles sold in the U.S. spanning all auto makers, so any additional strictures for imported cars and trucks could put those manufacturers at a disadvantage. Volkswagen, for instance, has acknowledged using illegal software to cheat on government emissions tests in the U.S. in part because engineers couldn’t design diesel-powered vehicles to meet environmental standards. Apart from tougher regulations, stricter testing regimens, too, could financially pressure vehicle importers.

U.S. auto makers and industry lobbyists have complained they are blocked from foreign markets by nontariff barriers. The U.S. car industry claims foreign auto makers face few of these barriers when shipping to the U.S., with Japan and Korea among the biggest targets of these grievances.

If the U.S. responds with barriers of its own, it would provide an incentive to shift as much manufacturing as possible into the U.S. and drive employment—a strategy that has been successful in the past. After Washington and Tokyo feuded over trade in the late 1980s and early 1990s, Japanese car makers made a concerted effort to dramatically increase production in the U.S. and to hire American workers.

Today, Japan’s three big auto makers—

Honda Motor
Co.

,

Toyota Motor
Corp.

and

Nissan Motor
Co.

—run a combined 11 assembly plants in the U.S., the biggest chunk of the 18 foreign assembly plants supplying the American market. Volkswagen, Korea’s

Hyundai Motor
Co.

and

Kia Motors
Corp.

and German luxury giants Daimler AG and BMW AG also operate U.S. factories. Combined with suppliers and dealerships, the number of Americans employed by the foreign automobile sector measures in the millions.

While the White House would like the plan to apply the standards to as many countries as possible, it isn’t clear if it would affect cars produced in Canada and Mexico, because they are member countries of the 1994 North American Free Trade Agreement. U.S. manufacturers rely on Nafta factories to source nearly all the products sold at American dealerships. More than 75% of Detroit’s sales are trucks or sport-utility vehicles, and those typically have been sourced to local plants.

Still, one of the biggest challenges for policy makers is how to differentiate between foreign and domestic cars. Auto manufacturing is a global industry, with companies often making and shipping parts across borders for assembly elsewhere.

Roughly three-quarters of the 17.1 million vehicles sold in the U.S. are built in Nafta factories, including those in the U.S.—11 million are assembled on U.S. soil. Of the remaining nearly four million shipped from outside North America, 1.7 million come from Japan, 820,000 are shipped from Korea and about a half-million are imported from Germany.

Ford Motor
Co.

,

General Motors
Co.

and Fiat Chrysler Automobiles NV have been increasingly sourcing from markets outside Nafta—and those efforts could be affected by the administration’s nontariff barriers. Ford, for instance, this year began shipping a compact SUV called the EcoSport from India and is expecting to sell significant volumes. That Follows Fiat Chrysler’s move to ship the wildly popular Jeep Renegade—a small rough-and-tumble off-roader based on Fiat car designs—from Italy to the U.S.

The initial goal was to make a proposal as part of the agency’s recently completed review of greenhouse-gas emissions standards for cars and light trucks for model years 2022-2025. That review led the EPA to propose lowering the standards set by the Obama administration last year, but no plans of tougher rules for foreign cars.

Write to Timothy Puko at tim.puko@wsj.com



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