EU will offer ‘prompt retaliation’ should Trump impose automotive tariffs

20 February 2019

EU will offer ‘prompt retaliation’ should Trump impose automotive tariffs

20 February 2019

The European Union has vowed prompt retaliation if the US follows through on its threat to impose tariffs on imported vehicles.

Should EU exports be hit by any US action, the continent will ‘react in a swift and adequate manner,’ Margaritis Schinas, a spokesman for the European Commission, commented following the news that President Donald Trump has received a report on the national security implications posed by auto imports.

Carmakers and parts suppliers are waiting in anticipation of the report's findings, and expect that recommendation options will include import tariffs of 20-25% on assembled cars and parts, with earnings at German manufacturers Daimler, BMW and Volkswagen Group most at risk.

The EU has prepared tariffs on a total of €20 billion in US goods should Trump follow through on his threat, which would chiefly hit Germany. Chancellor Angela Merkel gave a defence of the country’s car industry to an audience of senior security officials in Munich recently, calling the Trump administration’s suggestion that European autos are a threat to US security a ‘shock.’

EU Commission President Jean-Claude Juncker said that during a summit in Washington last summer, Trump promised not to damage trans-Atlantic trade with such measures.

‘Trump has given me his word that there will be no car tariffs for the time being,’ Juncker told the German newspaper Stuttgarter Zeitung.

‘I believe him,’ Juncker said. ‘However, should he renege on that commitment, we will no longer feel bound by our commitments to buy more US soya and liquid gas.’

The dispute follows US tariffs on European steel and aluminium imports, which were brought about using the same justification of national security. The EU retaliated by imposing duties on €2.8 billion worth of imports from the US, ranging from Harley Davidson motorcycles to Levi’s jeans.

Trade ministers from the 28 EU member states will soon meet to discuss draft mandates so that official talks with Washington can begin on a trade agreement.

The European Automobile Manufacturers Association (ACEA) cautions that the application of additional duties on imports of passenger cars and parts would not only severely affect the EU industry, but also the US economy and consumers alike. It would mean that all car manufacturers in the United States, whether domestic or international, would face a significant increase in costs.

A 25% levy on foreign cars would add around €10,000 to the price of European vehicles imported into the US, according to the EU Commission. This would especially affect German manufacturers whose business includes a large number of exports to the market.

The association says that this cost increase would have to be mitigated by lowering margins, reducing production costs or passing additional purchase and repair costs on to consumers, making their application counter-productive.

‘Imports of cars and auto parts from the EU clearly do not pose a national security risk to the United States,’ stated ACEA Secretary General, Erik Jonnaert. ‘Any trade restrictive measures in our sector will have a serious negative impact, not only on EU manufacturers but also on US manufacturers.’

Trump rejected the scrapping of any tariffs on cars imported to the US from the EU in September. Having received the report, the president now has 90 days to decide whether to impose tariffs as a national security measure.