US tariffs on cars could affect $400b in trade: EU

BRUSSELS • The introduction of US tariffs on European Union cars and car parts could affect US$300 billion (S$408 billion) in trade and damage nearly all of the bloc's 28 member states, according to an EU report.

Duties of 25 per cent "could be expected roughly to reduce US imports of car and car parts in half", the European Commission wrote in a memo obtained by Bloomberg.

US President Donald Trump said on Twitter on Friday that he would impose a 20 per cent levy on all cars imported from the EU unless the bloc removes import duties and trade barriers.

This came on the same day that the EU triggered tariffs on €2.8 billion (S$4.4 billion) of American products in response to US duties on its steel and aluminium exports that were justified on national security grounds.

The EU planned to retaliate against any new US tariff, according to the European Commission report prepared for governments ahead of a meeting of EU leaders this week.

"An introduction of US tariffs would be met with equivalent penalties imposed by affected trading partners," it said.

EU and US auto-related trade accounts for some 10 per cent of total commerce between the two regions, according to the European Automobile Manufacturers' Association.

EU TO RETALIATE

An introduction of US tariffs would be met with equivalent penalties imposed by affected trading partners.

EUROPEAN COMMISSION REPORT

The US is the No. 1 destination for EU car exports both in terms of volume - making up around a fifth of all exports - and revenue, with just under a third of total export value.

There were €294 billion worth of cars and car parts imported into the United States last year, €58 billion of which originated in the EU, according to the European Commission's report.

Mr Trump's latest salvo against the European car industry threatens to broaden a trade war that he has already sparked with China.

The US has pledged to impose 25 per cent tariffs on US$34 billion in Chinese goods on July 6, and China vowed to retaliate for the same amount of US imports.

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

Pain over any auto levy would not just be felt by the EU, according to the European Commission report.

The trade barrier would also hit the US economy and could result in "upwards of 180,000 jobs lost" and the impact could be doubled by countermeasures, the commission said in the memo.

An escalation in the trade dispute would hit Germany especially hard, as it ships about 600,000 cars to the US every year, Mr Arndt Ellinghorst, a London-based analyst at Evercore ISI, said in a note to clients.

A 20 per cent tariff on imported cars would be a "terrible" scenario for Germany, wrote Mr Ellinghorst, who estimated that the country's manufacturers - Volkswagen, Daimler and BMW - would suffer a financial hit of about €4.5 billion.

"Not a single car could be shipped with a profit to the US," he said.

BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on June 24, 2018, with the headline 'US tariffs on cars could affect $400b in trade: EU'. Print Edition | Subscribe