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Trump Weighs Six-Month Window for EU, Japan to Curb Auto Sales

Bloomberg logoBloomberg 5 days ago Jenny Leonard and Shawn Donnan
a car parked in a parking lot: Nissan Motor Co. Infiniti vehicles bound for shipment sit at a port in Hitachi City, Ibaraki Prefecture, Japan.© Bloomberg Nissan Motor Co. Infiniti vehicles bound for shipment sit at a port in Hitachi City, Ibaraki Prefecture, Japan.

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 on news the proclamation will exempt South Korea from any future tariffs because it renegotiated the U.S.-Korea Free Trade Agreement, or KORUS, last year.

President Donald Trump© AP President Donald Trump

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.

President Donald Trump and Japanese Prime Minister Shinzo Ab© AP President Donald Trump and Japanese Prime Minister Shinzo Ab 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 (£141bn) in passenger vehicles and light trucks in 2018 with more than $90 billion (£70bn) 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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Gallery: Business leaders are expressing frustration and uncertainty about the US-China trade war (Business Insider)

Xi Jinping et al. sitting at a table:         Executives at S&P 500 companies sounded off on the     US-China trade war during their first-quarter conference     calls.           Goldman Sachs equity strategists analyzed a selection     of executive commentary across S&P 500 earnings calls and     found trade-related uncertainty to be a major theme plaguing     business.                  Visit     Markets Insider's homepage for more stories.       If there's an elephant in the room that US multinational   corporations are grappling with, it's the ongoing    trade war between the two largest economies in the world.    Executives at S&P   500 companies addressed how the US-China trade dispute   impacted their company's first-quarter earnings results,   detailing a significant degree of uncertainty and the extent of   their exposure.    It's one of the three major themes highlighted by Goldman Sachs   strategists in a quarterly report released this week analyzing   excerpts from 40 first-quarter conference calls.     Executives said the uncertainty over trade made it more difficult   to navigate their relationship with China but did not have   significant near-term ramifications.    "The decision by President Trump to raise tariffs surprised both   managements and investors who had believed the trade friction was   moving towards a resolution," the strategists, led by David   Kostin, wrote in a report to clients out Monday.    Downward pressure on profit margins remains a risk for many   companies, the strategists said, while some corporations were   already preparing to shift their supply chains away from China to   minimize the impact.    "We've been very, very highly focused not only at fixing   long-term problems by diversifying away from China our supply,   but also by creating, through our procurement organization and   supply chain, a number of partnerships which are almost standby   partnerships, ready to jump in as soon as we have issues," Pierre   Brondeau, the chairman and CEO the chemical manufacturer FMC,   said on his company's earnings call earlier this month.     It should be noted that the comments listed below were made   before the most recent escalation in the trade war, which rocked   global markets over the last week.    China on Monday hiked tariffs on $60 billion worth of US   goods, sending markets plunging.     That followed President Donald Trump's surprise    announcement last Friday that the US would raise tariffs on   $200 billion worth of Chinese imports to 25%. The announcement   took investors by surprise after Trump earlier this month said   Beijing and Washington's    trade talks were progressing.    Below is a selection of what companies about the trade war's   impact on business:
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