US considers delaying extra import charges on European cars
On Saturday, the American president, Donald Trump, will decide whether to introduce a 25% import tax on European cars and car parts. After a trade dispute with China, there may be a likely delay of up to six months, because he doesn’t want to open a second front. And that for both European and Japanese cars.
The financial news agency, Bloomberg, reports today, based on an insider, that the White House has already decided to postpone the decision. The French news agency, AFP, has also been confirmed the news by industrial sources.
Trade fairs relieved
The stock exchanges reacted relieved to the message, and especially the share prices of car manufacturers shot a few percents higher. The US is the largest foreign market for the European car industry, which last year shipped no less than 1,15 million cars to the US, worth 37,3 billion euro. This means that European car export to the US is ten times greater than those of steel and aluminum.
According to the analysts, a rate of 25% would lead to a 15% drop in the operating profits of the six major car manufacturers (Volkswagen, Fiat Chrysler, Daimler, BMW, Volvo Cars, Jaguar Land Rover). This also poses a threat to the US economy, according to ACEA, the Association of Europan Car Manufacturers, because many European manufacturers also have factories in the US.
Moreover, European car manufacturers are already struggling because they have to invest heavily in the electrification of their fleet, while the Chinese market is cooling down. A tariff increase would, therefore, lead to lower margins, lower production costs, or higher prices for the consumer.
Minimal impact on the European economy
However, the effect of Trump tax on the European economy would still be quite modest, according to a report by S&P Global Ratings. “The macro-economic impact would be limited to 0,1% point of the EU economy”, it says. Even for Germany, which would be hit hardest, it is only 0,45% point of GDP over two years.
This is because the center of gravity of the – and European – economy has moved further and further away from industry to services in recent decades. According to S&P, car export to the US accounts for only 1% of German GDP.
New trade agreement
Trump would like to increase the import tariffs on European cars and car parts because he sees the importance of foreign cars as a possible threat to American national security. At the same, time Trump wouldn’t want to open two fronts at once and therefore keeps the tariff increase in reserve for the upcoming negotiations on a new trade agreement with both Europe and Japan.
Trade envoy, Robert Lighthizer, among others, is said to have insisted on not introducing new taxes. The Americans would thus alienate these allies further, while the trade feud with China is still going on.