What is the expected outcome of the investigation?

The Commerce Department initiated the investigation, based on Section 232 of the U.S. Trade Expansion Act of 1962, to determine whether the import of cars, light trucks, and car parts have weakened U.S. industry and, following from that, national security. The Commerce secretary has 270 days to prepare a report on the issue and recommend action, if any. Then, the president has 90 days to decide whether to agree with the recommendation or take another course of action (or not to take any), including determining the quota and duration of tariffs According to media reports, U.S. President Donald Trump wants tariffs of around 25%. Previous proceedings on the import of steel and aluminium ended with the decision to impose duties, followed by exclusions for individual partners granted by the administration.

What does Trump want to achieve?

President Trump is pursuing three goals by initiating this investigation and setting the stage for new tariffs. First, it fulfils his campaign promise to enact trade barriers to improve the competitiveness of American industry, leading to increased employment. Second, Trump sees in it a stronger U.S. negotiating position as trade partners worry about the possible impact of tariffs on their economy. This is particularly the case in the ongoing renegotiations of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Third, the possibility to exempt selected countries from the tariffs or quotas will lead to bilateral negotiations in which the U.S. administration can use the power of the American economy more to its benefit than it could in multilateral talks.

Which countries are most vulnerable to the potential tariffs?

The most important U.S. trading partners in the automotive sector are Mexico and Canada. These partners’ combined export of autos and parts were worth about $145 billion in 2017. This represents 45% of all cars and parts imported to the U.S. If the NAFTA renegotiations do not prevent the imposition of barriers, these two countries would be hit hardest by the tariffs. Next is Japan, the third most-important provider of cars, accounting for $55 billion (17%) of U.S. imports in 2017. It is followed by Germany ($30 billion, 9%), South Korea ($24 billion, 7%), and China ($19 billion, 6%). The most important partners from the European Union are: the UK ($10 billion), Italy ($6 billion), and Sweden and Slovakia ($2 billion each).

What impact will this have on Poland and the CEE?

This tariff might have significant consequences on Central and Eastern Europe (CEE). The largest exporter in the automotive industry to the U.S. is Slovakia, which is the ninth-largest automobile supplier to the U.S. Poland exports only about $300 million worth of autos/parts directly to the U.S., but the region is strongly involved in the production chains. Some $4.3 billion in value-added gross exports of transport equipment from the V4 countries—Czech Republic, Hungary, Poland, and Slovakia—are destined for the U.S. market (in 2011, OECD data). This accounts for 1% of the total value-added gross exports from this region that could be exposed to the U.S. tariffs. The sector, though, amounts to 16% of the value-added exports of the V4 countries. Furthermore, 20 U.S. companies invest in this sector in Poland and account for a total of 45,000 jobs. The potential tariffs, especially if there is retaliatory action from the EU, could significantly affect the sector.