trade war

EU: Trump's automotive tariffs could cost the US $294 billion

volkswagen automotive tariffs
Tariffvergnügen. Source: dpa

Amid escalating transatlantic trade tensions, the European Union has sent a strong warning to US President Donald Trump about the real costs of putting tariffs on cars. A report submitted by the European Commission to the US Department of Commerce on Friday suggests that protectionist measures would do severe damage to the US economy.

The report claims that tariffs would wreak havoc on cross-border supply chains in the automotive industry, risking higher costs for American industry, damaging exports and jobs, and pushing up prices for consumers.

The report assesses the immediate damage to the US economy at $13 billion to $14 billion, with much larger indirect costs from retaliatory measures by the United States’ trading partners. Taking countermeasures against recent tariffs put on imported aluminum and steel as a guideline, the report assesses potential indirect costs at up to $294 billion.

Several targets of Mr. Trump’s tariffs on steel and aluminum have already imposed countermeasures, including Canada and the European Union. This weekend, Ottawa imposed tariffs on US goods worth around $12.6 billion. The EU has imposed retaliatory tariffs on goods worth €2.8 billion ($3.27 billion), primarily on US-built motorcycles.

EU US trade relations

In May, Mr. Trump ordered an inquiry into the possibility of imposing tariffs on car imports. As with steel and aluminum, “national security” would be the justification. Last week, the president increased his threats, suggesting a 20 percent tariff on car imports. He has also stepped up attacks on the European Union via Twitter and at his public rallies.

The EU regards national security arguments as nonsense: In its report, the European Commission warned the US government that the move would be unacceptable. It would break international law and “further damage the reputation of the United States,” it said.

Mr. Trump’s secretary of commerce, Wilbur Ross, has hinted the decision on automotive tariffs could come as early as this month. Some observers suggest that the decision may be taken shortly before November’s midterm elections, for maximum political effect.

Mr. Trump’s administration wants Germany — which would be hardest hit by automotive tariffs — to pressure the EU to come to an agreement. Later this month, EU President Jean-Claude Juncker will fly to Washington for talks.

german car exports to the US 2017

But the 28-nation bloc seems resolute in its opposition to sanctions. It says Mr. Trump’s rhetoric about European trade surpluses is not just unfair, it is untrue: If the full economic picture is taken into account, Mr. Juncker says, the US actually has a trade surplus with the EU.

The EU also points out that European car manufacturers directly employ 120,000 Americans, with 420,000 indirectly employed through suppliers and car dealerships. European carmakers produce 3 million cars in the United States, with 60 percent exported, thus improving America’s balance of payments.

Mr. Trump is unlikely to be moved by economic arguments or relevant statistics. “Trump only understands the language of power,” one high-ranking EU diplomat told Handelsblatt. If EU countermeasures on automotive tariffs take the same approach as those on steel, they will amount to around €10 billion.

difficult trade relations, eu us tariffs

Countermeasures could include actions against US firms in other sectors, including banking and Internet services. European Union tariffs on American motorcycles have already prompted manufacturers Harley-Davidson and Polaris to shift some production from the United States to Europe.

The overall EU position remains unchanged: It is ready to enter into wide-ranging trade talks with the United States, including tariffs on cars, but it will not give in to threats, nor agree to measures damaging to its economic interests.

Till Hoppe is a Handelsblatt correspondent in Brussels, covering the European Union. To contact the author: hoppe@handelsblatt.com

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