F Ford Motor Company

By Adrienne Roberts and Chester Dawson 

President Donald Trump proposed to executives from the world's biggest auto makers Friday imposing a 20% tariff on vehicles brought into the U.S. and also subjecting imports to tougher emissions standards than domestic vehicles, according to people familiar with the session.

During a tense meeting at the White House that was billed as a discussion of U.S. auto-emissions standards, Mr. Trump brought up the issue of trade and targeted European auto makers for not building more vehicles in the U.S., according to the people briefed on the meeting. He then proposed a 20% tariff on imported cars, which he also suggested would be subject to Obama-era emissions regulations, the people said.

The president's comments added to the list of Washington policy changes the auto makers are now processing. The administration is considering new emissions standards that could clash with those in California and is in the midst of negotiating a rewrite of North American Free Trade Agreement rules that govern which cars and auto parts can be traded within the bloc without incurring duties.

A spokeswoman for U.S. trade representative Robert Lighthizer referred questions about the matter to the White House.

Industry officials were guarded in their reaction. "We thank President Trump for inviting us to the White House to discuss the automotive sector. He is passionate about our industry and we appreciate his interest and shared commitment to American jobs and the economy," said John Bozzella and Mitch Bainwol, the heads of the Association of Global Automakers and the Alliance of Automobile Manufacturers, respectively, in a joint statement.

Mr. Trump has rattled car executives dating back to his presidential campaign, questioning their commitments to U.S. jobs and threatening stiff border taxes on Mexican imports. Auto makers have responded by highlighting U.S. commitments and, in some cases, changed foreign investment plans. Mr. Trump has touted industry announcements, even some that were long-planned and not necessarily responses to his criticisms.

Mr. Trump has repeatedly singled out autos -- a major part of U.S. trade -- in warnings about potentially imposing tariffs. This year he said cars from the European Union could face tariffs if the EU retaliates against U.S. duties on steel and aluminum imports. Trade experts say it would be difficult to enact extra tariffs on car imports without violating World Trade Organization rules.

Under WTO agreements, cars imported to the U.S. are subject to 2.5% tariffs, with trucks subject to 25% tariffs, unless the U.S. has a free-trade agreement with the country exporting the vehicles.

During the Friday meeting, which was closed to reporters except for opening statements, administration officials said they would work with California on the emissions issue as the administration moves to ease Obama-era federal rules. The companies welcomed that message, as they are hoping to avoid a dual system that included a national standard and a California standard.

The state has an Environmental Protection Agency waiver allowing it to set its own standards. Many other states follow California's lead, a coalition that makes up a sizable portion of the U.S. car market.

Mr. Trump began the meeting by threatening litigation against California, but in an about-face, later in the meeting said EPA Administrator Scott Pruitt and Transportation Secretary Elaine Chao would be tasked with striking a deal with California.

One person with knowledge of the meeting said the Big Three Detroit auto makers stayed behind at the end of the session after the foreign auto makers left. It was unclear what was discussed.

At the beginning of the meeting, the president urged the companies to build more cars in the U.S., saying they should "build them here and ship them overseas." He singled out Sergio Marchionne, the chairman and CEO of Fiat Chrysler Automobiles NV, for praise and lauded the company's plans to move a facility to Michigan from Mexico.

"That's what we like," Mr. Trump said. "Right now, he's my favorite man in the room."

He also credited the law overhauling the U.S. tax code that he signed last year for increasing auto manufacturing in the U.S.

On the emissions issue, auto makers say the current standards for their vehicles are too rigorous and don't reflect consumer demand for fuel-thirsty trucks and sport-utility vehicles that now eclipse 60% of U.S. sales. But they have voiced concern that the rollback being pushed by the White House is so extensive that it will cause more problems than it seeks to solve.

"The administration will soon issue a range of proposals for future fuel economy and greenhouse gas regulations, and we look forward to reviewing their notice of rulemaking and providing comments along with other stakeholders," Messrs. Bainwol and Bozzella said in their statement. "We also appreciate the president's openness to a discussion with California on an expedited basis."

Separately, Mr. Trump during the opening again assailed Nafta, and the subsequent discussions with car executives were expected to provide an opportunity for vehicle manufacturers to sound out the president on proposed changes to the agreement's auto rules.

The U.S. now wants vehicles and significant components that move across the Nafta region to have at least 75% North American content to avoid duties when crossing borders, down from a previous proposal of 85%. The current trade pact sets the so-called rules-of-origin threshold at 62.5%. The Trump administration also has dropped a previous suggestion that vehicles be made up of 50% U.S. content to pass through borders duty free.

Detroit's auto makers and other vehicle manufacturers have moved significant amounts of production to Mexico, and had grown concerned that drastic changes to Nafta would upset their business plans and potentially force higher prices on consumers.

According to Mr. Bozzella's group, international auto makers built more than 5.1 million cars and trucks in the U.S. in 2017, just under half of all light-duty vehicle production nationwide.

--Mike Spector and Mike Colias contributed to this article.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com and Chester Dawson at chester.dawson@wsj.com

(END) Dow Jones Newswires

May 11, 2018 20:13 ET (00:13 GMT)

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