Trump trade war is a threat to consumers, say European car makers

Leading European car makers have warned that a trade war between the United States and the European Union would stifle economic growth and cost consumers money.

US president Donald Trump has threatened to impose tariffs of up to 20% on cars imported into the country, and the US Department of Commerce is conducting a review into whether such imports pose “a risk to national security”. EU officials say raising tariffs would leave them with “no choice” but to respond.

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The US currently imposes a tariff of 2.5% on car imports, compared with the EU’s 10%. China recently dropped its import tariff from 25% to 15%. The Auto Alliance, a US industry body formed by the major car firms, says a 20% tariff on EU imports would add an average of $5800 (£5000) to the price of European cars in the country. The introduction of such tariffs could be hugely problematic for car firms that produce global models in single locations, such as Volvo. The Swedish marque recently unveiled the S60 saloon at its new factory in South Carolina.

The plant is described by Volvo R&D boss Henrik Green as “the example of free trade”.

The £770m, 2.3m-squarefoot facility is Volvo’s first in the US, and the sole production site for the S60 and, from 2021 onwards, the next XC90. Volvo plans for around half of the 150,000 models produced at the site annually to be exported, mostly to Europe and China. The facility also includes a processing centre to ready Volvo cars imported into the United States for sale.

Volvo boss Håkan Samuelsson warned that all tariffs would achieve would be to make cars more expensive. He added: “If we go from a system where we have large global trade back to the 19th century where everybody protects their own markets, it is not good news for the wealth of nations. That would be really bad, and not just for Volvo.

“The growth in the economy in the last 100 years has been based on the comparative advantages that someone is better doing one thing so they concentrate on that, and buy other stuff from someone who’s better at it.”

By choosing to produce cars in single locations, Volvo would be particularly exposed if tariffs are increased by both the US and EU. Samuelsson said the company “could not plan” for the impact of increasing tariffs, adding: “We plan to continue having an open economy, building the S60 here and selling it in Europe and China. If that’s not going to happen, you’d have to invest in Europe and China with these body types, which is hundreds of millions more investment.

And who will pay that at the end? The consumers.”

By contrast, Volkswagen’s extra scale means that it can use a far more regionalised production model, with most of its key US cars — the Atlas SUV, Passat and the forthcoming Atlas Cross Sport — all made at its plant in Chattanooga, Tennessee.

With tariffs being based on where a car is made, that means the firm would be insulated from a US-EU tariff trade war.

Despite that, Hinrich Woebcken, boss of the VW Group’s North American division, said: “Any tariff doesn’t have any winners. We stand for free trade and openness, and we believe the global growth of the economy heavily depends on free and fair trade.”