EU threatens response worth $294 billion for potential auto tariffs

The EU is threatening a tariffs response that could amount to $294 billion if Trump follows through on his threats of increased tariffs on auto imports from Europe. Nearly a fifth of America exports are matched by that sum, meaning that America would suffer a major hit by going down this road. Many of Europe’s auto manufacturers have invested a substantial amount into America, with multiple factories in the South, which was a major part of Trump’s constituency, representing tens of thousands of jobs. It’s possible, therefore that if Trump pulls the auto tariffs lever on Europe that they could respond by taxing nearly $300 billion in imports from the US, which would not bode well.

Deutsche Welle reports:

The trade conflict between the US and the EU escalates: After Trump’s threat to slap higher duties on auto imports from the bloc, the EU warns it could sanction US exports worth billions.

The European Union warned on Monday that up to $294 billion (€252 billion) worth of US exports could become the target of countermeasures if President Donald Trump remained serious about his threat to impose a 20-percent tariff on cars imported from the EU.

In a letter to US authorities, the European Commission, which handles trade policy for the bloc’s 28 members, said “up to $294 billion of US exports … could be subject to countermeasures across sectors of the US economy.”

This was the equivalent to 19 percent of US total exports in 2017, it added.

The EU executive underlined that European car companies were important contributors to the US economy and “well established” there. “In 2017, US-based EU companies produced close to 2.9 million automobiles, which accounted for 26 percent of total US production,” it said.

Pointing to sites in South Carolina, Alabama, Mississippi and Tennessee — southern US states known for their unwavering support for Trump — the EU said its companies supported 120,000 direct and indirect US jobs in plants across the country.

Trump’s threat was the latest salvo in an escalating trade spat that saw the European Union slap duties on US-made jeans and Harley Davidson motorcycles in a tit-for-tat response to US tariffs on European steel and aluminium exports. The US president has also singled out the Europeans as a problem as great to the US on trade as China. Auto imports are a particular thorn in his side.

Slovakia to feel most pain

The specter of US tariffs that sent shares in Fiat Chrysler, Daimler and BMW tumbling on European stock exchanges also spooked Slovakia’s automotive sector. As the world’s largest per capita car producer, Slovakia stands to be hit hardest if US President Donald Trump makes good on his threat, analysts say.

It boasts Germany’s Volkswagen — which is Slovakia’s biggest private-sector employer — France’s PSA and South Korean Kia along with more than 300 automotive supply companies. All told, they generate over 300,000 jobs in the eurozone country of 5.4 million inhabitants.

This makes Slovakia the EU’s leading car and car part exporter to the United States in terms of share of GDP — and the most vulnerable to tariffs. According to Slovak Institute for Financial Policy (IFP) calculations, a 25-percent tariff on cars could cost Slovakia approximately 90 million euros.

As the only Slovakia-based carmaker that exports directly to the US, Volkswagen — and its many local suppliers — will suffer the most should US tariffs be slapped on the high-end Touareg, Audi Q7 and Porsche Cayenne models produced at its Bratislava plant.

BMW appeals against car tariffs

In a letter to US Commerce Secretary Wilbur Ross, German car manufacturer BMW has urged the US not to introduce tariffs on foreign cars.

“The domestic manufacture of automobiles has no apparent correlation with US national security,” the company wrote in a statement, submitted as part of an US Department of Commerce investigation into whether car imports pose a threat to the country’s security.

Ross claimed that Trump had far-reaching, “unilateral” power to impose and adjust tariffs and quotas by invoking a rarely used 1962 law authorizing presidential action against imports that undermine national security.

BMW said it “appears that the purpose of threatening to impose these duties is to achieve certain economic objectives, under the theory that enhancing US economic competitiveness will enhance US national security.”

BMW’s largest manufacturing base in the world is in Spartanburg, South Carolina, where SUVs from the company’s X line are built. With production capacity currently being expanded to 450,000 cars, the Spartanburg factory is responsible for around 36,000 jobs, including subcontractors.

The manufacturer says that in 2017 it exported 272,000 cars from the US and imported around 248,000 cars.

Juncker to ‘dedramatize relations’

Last week, the European Commission announced that its president, Jean-Claude Juncker, would travel to Washington at the end of July to discuss EU-US trade tensions with US President Donald Trump.

Speaking after a two-day EU summit, Juncker said “we should dedramatize these relations. We need these relations, the US needs these relations. I’m not sure that we will find an agreement between the US and the EU, but we’ll try.”

Among other things, the aim of the meeting was to discuss tariffs on the automotive sector, a spokesperson said, with Trump mulling higher tariffs on EU vehicle imports.

It’s not as though these manufacturers are going to duplicate their production facilities, one batch for the US and another for foreign markets, as they already have a lot of their production in the US as it is. These companies are not going to become American companies, and they’ve already invested a lot into America, and hired a lot of Americans to build those cars. They’re already building here, though it may not be the entirely of their lineup.

So, slapping them with tariffs is only likely to result in higher operating costs and higher prices for the end product for the consumer to have to eat. That represents the possibility for layoffs and decrease in overall sales, which is bad for the US in a multitude of ways. It won’t represent more production coming to America from these companies, it won’t bring more jobs, and it won’t make things more affordable. In fact, it only means economic damage to Americans, and that doesn’t make America any greater.