Trump threatens 20% tariff on European car imports

Alex Wayne
Bloomberg News

President Donald Trump said he plans to impose a 20 percent tariff on all cars imported from the European Union unless the trade bloc “soon” removes import duties and other barriers to U.S. goods, escalating global trade tensions.

“Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” Trump said in a tweet on Friday.

Trump’s tweet came hours after the EU imposed tariffs on about $3.3 billion of American products in response to his barriers to imported aluminum and steel.

The European tariffs target politically resonant products, including 25 percent duties on Harley-Davidson motorcycles, Levi Strauss jeans and bourbon whiskey. The EU measures cover a total of around 200 categories in total, also including various types of corn, rice, orange juice, cigarettes, cigars, t-shirts, cosmetics, boats and steel.

Trump’s tweet threatens to broaden a trade war that he’s already sparked with China. The U.S. has pledged to impose 25 percent tariffs on $34 billion in Chinese goods on July 6, and China vowed to retaliate in the same amount of U.S. imports.

The U.S. may justify the auto tariffs on the grounds of national defense, just as it did in March when imposing duties on global imports of steel and aluminum. Trump initially exempted the EU from the metal tariffs, but let the temporary reprieve expire after negotiations with the Europeans fell apart.

America’s Ambassador to Germany Ric Grenell is in Washington this week seeking a deal on auto levies. He spoke to White House trade adviser Peter Navarro, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin about reducing existing tariffs on cars shipped between the U.S. and Europe to zero. There’s support in the administration and from German carmakers for such an idea, but no agreement has been reached yet.

The Commerce Department in May started investigating whether imports of cars and light trucks hurt America’s ability to defend itself by eroding the country’s auto industry. If the findings show a threat to the U.S., a 1960s-era trade law gives the president authority to impose import restrictions without congressional approval.

Many lawmakers have been critical of Trump’s use of the trade law, which was rarely used before he took office. Ross during a Senate hearing on Wednesday faced heated questions from GOP lawmakers who argued there was no merit to claiming auto imports threaten the country’s defense capabilities.

While the damage would be steep, Friday’s proposal is actually lower than the 25 percent previously floated by Trump. A surcharge at the higher rate would add around 10,000 euros (around $11,600 to the sticker price of a European built car, the European Commission said in a report obtained by Bloomberg News prepared ahead of next week’s summit assessing tariff threats. Duties at this level could be expected roughly to reduce U.S. imports of car and car parts in half.

For its part, the EU is worried that U.S. tariffs would cause “severe disruption” to the bloc’s auto industry, according to the paper.

A U.S. tariff on car imports “would call into question the global production model at a time when efforts should be devoted” to developing self-driving features and electric vehicles, the commission said in the paper. “It goes without saying that protectionist measures of this kind will not help U.S. car producers either.”

The risk of a trade war is becoming more real, said Jeff Schuster, senior vice president of forecasting at LMC Automotive.

“A few weeks ago, we thought these issues on trade would fade away,” Schuster said. “What we’re now looking at is extremely disruptive to carmakers for their production setups and profit margins.”

German manufacturers Volkswagen, BMW and Daimler are the biggest European exporters of cars to the U.S., followed by Fiat Chrysler.

Shares of Volkswagen AG, Daimler AG and BMW AG fell in Frankfurt after Trump’s latest broadside.

Daimler, the maker of Mercedes-Benz cars, pared steeper earlier losses to close down 0.3 percent. Fellow luxury-car maker BMW declined 1.1 percent. Volkswagen, less reliant on imports into the U.S., lost 0.2 percent.

General Motors, which had been up as much as 1.5 percent, was little changed in New York. Ford Motor Co. was up 0.2 percent, after a 1.4 percent rise, and Fiat Chrysler’s New York-trade gave back all of its earlier 2.5 percent advance.