Newsletter
Trump signs directives to impose tariffs on washing machines and solar panels in the Oval Office at the White House in Washington on January 2018.
Image: Trump signs directives to impose tariffs on washing machines and solar panels in the Oval Office at the White House in Washington on January 2018. REUTERS/Jonathan Ernst

EU Warns US About Causing Self-Harm With Automotive Import Tariffs

by -
Image: Trump signs directives to impose tariffs on washing machines and solar panels in the Oval Office at the White House in Washington on January 2018. REUTERS/Jonathan Ernst

The European Union has sent a warning to the United States about the nature of car levies.

The E.U. says that if the U.S. imposes import tariffs on the auto industry, it will hurt Americans.

The Boomerang Effect

The European Union has issued a caution to the United States. As part of the ongoing “Trade-War” – The E.U. says that if the U.S. imposes import tariffs on the automotive industry, it will lead to self-harm. These levies on cars and car parts would end up hurting the American auto sector. Moreover, it would also likely bring on an additional $294 billion in U.S. export counter-measures from its trading partners.

The European Union issued a 10-page submission to the U.S. Commerce Department. It detailed the economic impact of applying tariffs to vehicles and vehicle parts. It illustrated how the tariffs are unjustified and did not make economic sense overall or to the United States itself.

National Security Investigation

Upon receipt of the submission, the Commerce Department began an investigation. The grounds for the investigation were said to be national security under President Trump’s instruction. Trump has regularly criticized the European Union regarding its U.S. trade surplus and for having higher car tariffs.

At the moment, the E.U. has a 10 percent levy on autos and auto parts. Comparatively, there is a 2.5 percent levy on vehicles and parts entering the United States. Last week, Trump explained that his government was finishing a study and indicated that the U.S. would soon be required to take action. He had previously threatened the E.U. with a 20 percent tariff on all vehicles assembled in the European Union.

E.U. Prevention Efforts

The European Commission has stated that it was making efforts to convince the United States that applying the tariffs in Trump’s threats would be unwise.

“We’ll spare no effort, be it at the technical or political level, to prevent this from happening,” said Jean-Claude Juncker, the president of the European Commission. Juncker will be taking a trip to Washington later in July in the hope of halting additional U.S. tariffs.

In 2017, the European Union exported 37.4 billion euros’ worth of cars to the United States. On the other hand, the United States shipped 6.2 billion euros’ worth of cars to the European Union. The E.U. stated that for certain products, such as trucks, there are higher U.S. import duties.

In the submission the E.U. sent to the United States, it explained that E.U. companies make approximately 2.9 million of its vehicles within the United States itself. As a result, it supports 120,000 jobs within the U.S. car manufacturing industry. Moreover, they support 420,000 jobs in the U.S. if those in car parts retailers and vehicle dealerships are taken into account.

Tariffs on Car Imports

Over the last few years, there has not been much of an increase in the number of imported vehicles to the United States, said the E.U. submission. Instead, their growth has mainly paralleled that of the U.S. auto market’s overall expansion. Growth has occurred at the same rate as the demand rose beyond what domestic production was capable of meeting.

A BMW Vision Future Luxury concept car is displayed at Auto China 2014 in Beijing
Automotive companies reacted to the pending tariffs on imported cars – BMW stated this act will have a “Negative effects on investment and employment in the United States”. REUTERS/Jason Lee

According to the E.U. submission, the threatened auto and auto part tariffs would undermine auto production in the United States. It would force American vehicle manufacturers to pay higher costs for the parts they import and that they are not capable of making themselves. The E.U. calculated that the negative impact on the American gross domestic product would be $13 to $14 billion initially. Furthermore, there would be no improvement to the current account balance, said the submission.

Additional Counter-Measures

Should the E.U. apply additional counter-measures comparable to those it implemented in response to the U.S. aluminum and steel import tariffs, it would involve up to $294 billion in U.S. exports. The submission pointed out that it would mean that 19 percent of overall U.S. exports would be affected by the E.U.’s counter-measures.

The counter-measures would affect the American economy above and beyond the impact it already said the tariffs would have on the U.S. auto industry.

The submission also went so far as to point out that any link that may exist between American national security and the automotive industry in its current condition is “weak.” The reason is that U.S. military vehicles – for example, the Humvee – are made and manufactured by different producers in a very specific niche.

U.S. Opposition to Trump’s Tariff Threat

The U.S. Chamber of Commerce, the largest business group in the United States, has launched a campaign in opposition to Trump’s trade tariff policies. This is even more noteworthy as this group has traditionally been a close ally of the Republican Party.

Some of the trading partners that have been closest with the United States are putting retaliatory measures into place. As this occurs, Trump’s approach has managed to cause the financial markets to become unsettled. This has led to a much more tense relationship between the U.S. Chamber of Commerce and the White House.

The Chamber’s new campaign against the tariffs is being made very aggressively. It has applied a state-by-state analysis and argues against Trump’s global trade war strategy. According to the Chamber, the tactic will result in higher costs for U.S. consumers.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.