Trade War Watch: Automotive Tariffs and the European Union

It’s been nearly a year since President Donald Trump and European Commission President Jean-Claude Juncker kissed and negotiated a temporary truce aimed at buying the United States and the EU time to renegotiate their positions without fear of new tariffs.

Unfortunately, it seems everyone had better things to do following the smooch.

At the moment, the United States is trying to establish a formal deal with the Japanese government while simultaneously trying to keep the trade war with China from escalating out of control. Meanwhile, Europe faces troubles on the home front (Brexit, rampant protests, Russia, etc.) and is reeling from recent parliamentary elections that shifted votes to both ends of the political spectrum. Neither group is in a position to make the other a top priority. Yet the EU obviously doesn’t want to wait forever, and Germany can’t afford to allow the U.S. to slap it with automotive tariffs.

The U.S. scheduled its 180-day auto deal deadline to coincide with a period in which the European Commission plans to change its leadership, meaning trade negotiations must be finalized before that point if sitting members want to have any say. According to Bloomberg, there’s also enough political heat between the U.S. and EU to make that a bigger problem than it needs to be.

European officials have repeatedly blamed the Trump administration for having an unfavorable view of the bureaucracy in Brussels. While often exaggerated, there’s still plenty of truth to it. Trump has occasionally referred to the EU as an adversary, accusing it of not effectively representing the people of Europe, specifically in regard to Brexit. He urged the EU to accept previous UK deals, to no avail. Conversely, the European Commission has been critical of the White House’s current stance on the Iran nuclear deal and its willingness to impose tariffs on anything it sees as being less than a square deal.

It’s fine for some countries to stand firm and oppose strong-arm negotiation tactics, but others don’t have that luxury.

From Bloomberg:

Germany, which exported 27.2 billion euros of cars and car parts in 2018, is more concerned about Trump’s threat of automobile tariffs than protecting European agricultural interests. The home of Mercedes-Benz, BMW and Porsche generated a surplus of 22 billion euros in automotive trade with U.S. last year.

Recent rounds of bilateral talks have yielded little progress and U.S. officials have resisted even broaching the subject of autos, according to people close to the negotiations.

“I don’t think the U.S. is ready to start on the tariff negotiations,” Cecilia Malmstrom, the EU’s trade commissioner, told reporters following a meeting with U.S. Trade Representative Robert Lighthizer earlier this month.

Despite last year’s tentative plan to eliminate auto tariffs on both sides of the Atlantic, the deal effectively fizzled out after the United States seemingly lost interest. EU officials later explained that any new automotive tariffs would be met with reciprocal actions against the United States. In January, the EU said the measures could add at least 20 billion euros ($22.3 billion) to U.S. products.

With the auto industry now in the grips of harder times, spurred by elevated development costs and a disinterested public with less cash to share, now would be an incredibly poor time for the industry to grapple with new tariffs. Yet Europe and the United States can’t ignore each other forever. Whether it’s with the sitting European Commission or not, a deal has to be made eventually — even if it involves tariffs.

[Image: The White House]