Trade War Watch: Trump Rejects Auto Tariff Deal With Europe

Earlier this year, President Donald Trump took a renewed interest in European tariffs after deciding he didn’t like what he saw. He argued it was time for the United States to consider a fresh tax on vehicles manufactured in the European Union to level the playing field. “If the EU wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a tax on their cars which freely pour into the U.S.,” he wrote in March.

A few months later, America floated the ridiculous-sounding proposal of abolishing all automotive tariffs between the U.S. and EU. Surprisingly, Europe was highly receptive. German Chancellor Angela Merkel even directly addressed the issue by saying she would support lowering EU tariffs on U.S. car imports. The European Union now seems willing to pursue a zero-tariff solution on automobiles.

However, Trump has since changed his tune. The new rhetoric coming from the White House is that the deal, which was originally pitched by the U.S., is no longer good enough.

This came just a few hours after EU Trade Commissioner Cecilia Malmstrom told the European Parliament’s trade committee that the EU is absolutely “willing to bring down even our car tariffs to zero, all tariffs to zero, if the U.S. does the same.”

While that sounds like exactly the sort of deal the United States wanted, Trump pulled back. “It’s not good enough,” he told Bloomberg in an interview from Thursday. “Their consumer habits are to buy their cars, not to buy our cars. The European Union is almost as bad as China, just smaller.”

That is true. The majority of American automobiles that sell well in Europe are manufactured outside the U.S. However, there’s a swath of German brands that build here and sell globally that would be seriously affected by tariffs — namely BMW and Mercedes-Benz.

From Bloomberg:

BMW for example is projected to sell nearly 70,000 X3 SUVs in Europe made in its South Carolina factory this year, according to data from LMC Automotive. Compare that to roughly 15,000 units of Tesla Inc.’s Model S sedan, which LMC, an industry data consultancy, projects will be the top-selling model in Europe assembled in the U.S. by an American automaker.

Presently, the U.S. imposes a 25 percent tariff on light trucks and pickups and a 2.5 percent levy on passenger cars. The EU imposes a 10 percent tariff on all passenger vehicles. The United States has suggested increasing the fee on imported automobiles if a deal cannot be struck that would boost domestic production and get more American Made machinery into European driveways.

Figuring out exactly what the U.S. wants out of this arrangement is difficult to pick apart. It’s not as if the EU can force its population to buy American, and nullifying tariffs was something the United States seemed genuinely interested in. It also seemed incredible that the EU was willing to play ball. Trump clearly desires more from Europe, though.

We’re curious to see how this plays out, as there appeared to be plenty of buzz around the deal. The zero-trade proposal also gave European auto stocks a boost, so it’ll be doubly interesting to see how they’re impacted by the apparent dissolution of the plan.