President Threatens 20% Tariffs on European Cars
On the same day that European tariffs went into effect in retaliation for U.S. steel and aluminum tariffs, President Donald Trump tweeted that if the European Union doesn't drop those tariffs and other trade barriers soon, "we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!" The Commerce Department is conducting an investigation into whether auto and auto parts exports are a threat to national security. While speaking to reporters at a convention on June 21, Commerce Secretary Wilbur Ross said the investigation should be complete in late July or in August.
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Ross told lawmakers earlier this week that no decision has been made and it's too early in the investigation to discuss the possible national security issues that would necessitate Section 232 tariffs (see 1806200034). There will be a public hearing on the potential tariffs July 19 and 20 (see 1806200041).
Foreign original equipment manufacturers without a U.S. production footprint would likely take the biggest hit from new Section 232 tariffs on imported vehicles and parts and other trade policy shifts being considered by the Trump administration, Merrill Lynch analysts said in a June 20 research report. "In our view, tariffs and/or other trade barriers will be most detrimental to any manufacturer shipping goods cross-border," the analysts said. "Similar to the automakers, most auto suppliers have employed a low-cost sourcing strategy over the past decade, and many have facilities that are aligned with their [original equipment manufacturer] OEM customer footprints. As a result, nearly all the US suppliers have some level of Mexico or Canada exposure, although a number of these facilities are supplying OEM final assembly plants in their respective countries (rather than shipping parts across border)."
Meanwhile, the trade group that represents the German auto industry, VDA, put out a press release June 20 in response to a report in The Wall Street Journal that said Germany is willing to drop its 10 percent tariffs on cars to zero if the U.S. would do the same for cars and trucks. The U.S. has a 25 percent tariff on imported trucks outside NAFTA, but only a 2.5 percent tariff on cars. Trump has repeatedly complained about the higher European tariff on cars.
"Despite the difficult situation at this time, the German automotive industry appeals for continued talks with the US in order to strengthen transatlantic relations and resolve existing problems. Trade barriers can only be eliminated by both sides. A transatlantic agreement conforming to WTO rules, which includes industrial import tariffs, might be a path to take. Future agreements between the EU and the US must be based on the rules of the WTO. There are no proposals for unilateral concessions or the mutual elimination only of duties on imported cars," VDA said.