European commissioner: We will react to US auto trade tariff

The European Union will react to US president Donald Trump's import tax on cars shipped from Europe, a vice-president of the European Commission has warned. 

Jyrki Katainen called for an end to growing tensions between Trump and the EU over trade tarriffs, because the threat of increased cost to export for either party would hurt domestic industries. 

“If they decide to raise their import tariffs, we’ll have no choice, again, but to react. We don’t want to fight in public via Twitter. We should end the escalation,” Katainen said in comments published by French newspaper Le Monde. 

Trump recently renewed his threat to the European car industry, threatening a 20% import tax on cars entering the US from the EU.

"Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!"

— Donald J. Trump (@realDonaldTrump) June 22, 2018

It's the latest in a string of outbursts by Trump in relation to trade tariffs, having expressed disappointment previously at the disparity between European car sales in the US and US car sales in the EU. 

Trump has also previously revealed to French president Emmanuel Macron that he wishes to raise levies on imported cars to 25% and obliterate European luxury car sales in the US. 

Wirtschaftswoche reports that the comments made to Macron, reported to the media via several EU and US diplomats, could spark a trade war between the two sides. Germany’s car industry is a significant source of income to the EU.

Trump has previously expressed his distain at German luxury brands, particularly Mercedes-Benz, and its prominence in New York’s Fifth Avenue. It’s reported that Trump said the tax would be upheld until Fifth Avenue was devoid of Mercedes models. 

Furthermore, Trump has launched a domestic investigation into whether vehicle and automotive parts imports are hindering the US sector’s ability to compete globally. Under the country's Trade Expansion Act of 1962, such a scenario could allow Trump to raise import tariffs to protect national interests.

This was the process undertaken last month when Trump raised tariffs for steel and aluminium imports. Tariffs for those materials now stand at 25% in a move to protect local producers. 

Global new car sales: the key trends and what they mean

Currently, the US charges just 2.5% on car imports; this is lower than the EU’s 10% and China's 25%, although the latter will lower its tariff to 15% from 1 July. Trump had previously described China’s unusually high import tariff as “stupid trade”.

Although a large portion of the US’s most popular car models, including those from foreign brands (such as the upcoming BMW X7), are already manufactured within its borders, many are imported from outside the country. Most come from Asia, but several European brands, including Land Rover, don’t have US factories.

The US is the largest export market for cars built in the EU. Last year, £171 billion worth of cars were exported from the EU, with the US accounting for 25%. Of those, just over half were exported by German car makers.

Leaders in China and South Korea have already said they will monitor the situation closely and react accordingly to protect the interests of brands in their countries.

Although China is the world’s largest new car market, with 23.9 million vehicles sold there last year, the US remains a core focus for most global brands. In 2017, 17.2m vehicles were sold in the US, compared with 15.6m in the EU and European Free Trade Association countries.

Felipe Munoz, global analyst at JATO Dynamics, said: “While German-made cars accounted for 4% of Q1 18 US sales, American-made cars made only 1.3% of German registrations in the first quarter. Most of the units imported from Germany are premium cars, which tells a lot about the position of American car industry in the premium market. Germans are the world’s leaders in the premium market as they hit before American and Japanese cars, and have been evolving fast, with large ranges of products.

“Any attempt to increase taxes on German cars would have a larger effect on BMW and Mercedes, and a lower effect on Volkswagen, as most of the sales of the premium brands correspond to imported models (63% for Mercedes and 64% for BMW). It would also hurt the operations of Porsche, which imports all of its cars from Germany. If the trade conditions get tough for German imported cars, this would have a bigger effect on sedans and sport cars, which are the largest part of their imports. As these segments don’t grow anymore, both BMW and Mercedes could consider axing some of the models or increase local production of SUVs.”

Also read: Stung by EU tariffs, Harley-Davidson to shift some production outside USA