Trump's Vehicle and Auto Parts Tariff Spark Controversy but he has all the Cards
Promoted
Under the proposals, tariffs of 20% will be added to all vehicle and auto parts, raising imported car prices by an average of $6,000, while domestic made vehicles will see average price increases of $2,000 according to car manufacturers.
General Motors have also raised rejection as have the American public. Over 2000 comments were made to the Commerce Department inquiry that started investigating the implications of tariffs on President Trump’s instructions he issued in May.
In typical style Trump tweeted: "Based on the Tariffs and Trade Barriers long placed on the US and its 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 US. Build them here!"
Other organisations such as the Peterson Institute for International Economics together with Unions warned of substantial job losses should the tariffs go ahead.
The U.S. imported $200bn USD worth of foreign vehicles and parts last year. This was predominantly from the Mexico, Canada, Japan and Germany.
Leading car manufacturers Toyota and BMW employ more Americans than any other car manufacturer and are responsible for $100bn USD in car and autoparts imports last year.
The Big Retaliation Fear
The EU has responded in kind threatening reciprocal tariffs which according to Bloomberg are on standby should negotiations fail. This is likely to follow a similar pattern to the steel and aluminium tariffs imposed by the US earlier in the year citing national security issues as the reason for the tariff. In turn, the EU placed tariffs on American imported goods to the same value, which is around $3.3bn USD. Reciprocal vehicle and auto part tariffs are likely to adopt the same model.
On July 19th president of the European Union, Jean-Claude Junkers opened negotiations to try and thrash out a new deal to satisfy the U.S and the EU.
Whether America's car makers and Unions are factoring in reciprocal tariffs is unclear. Many members of the U.S' political class are also against vehicles tariffs.
Trump's Ace in the Hole
Despite the willingness of the EU to negotiate the cards are arguably with Trump. America together with China is the largest car market in the world. Last year, Americans purchased just over 6m passenger cars and it remains the biggest export market for EU vehicle manufacturers. During 2017, the EU exported €27bn worth of vehicles and parts. This puts them at a key disadvantage during negotiations as the American market is arguably too big to lose.
The history between Trump and the EU tends to favour the American president. Early in his presidency, he accused the EU of being too German-centric. Currency speculators went into a panic buying the Euro and selling the dollar making the Euro the stronger currency. Trump's critics went into overdrive accusing him of being a buffoon. Quietly, during this period of currency buying and selling European imports into America became less competitive, while American exports into the EU became more competitive.
Although German car manufacturers are optimistic about an agreement, French car manufacturers are not. They see the tariffs as inevitable and want to avoid the escalation of tariffs going forward.
Given Trump and America's negotiating position it is hard to envision the best EU achieving more than damage limitation.
That said the EU is exploring a number of options under World Trade Organisation (WTO) rules. They are after what is called a plurilateral accord whereby the EU and America can thrash out a deal that does not require negotiating with all 164 members of the WTO.
There are limitations, however, as an agreement has to be open to all members of the WTO on a favoured nation basis.
The Little Guy Will Feel the Heat the Most
Although the tariff battle is fought in the political arena it will be the little guy on the ground that will feel the impact. This includes car manufacturing employees and the small businesses that supply auto parts to consumers and small businesses.
Currently auto part sales are set to exceed $10bn in sales. Tariffs could affect the industry considerably applying pressure to companies such as AutopartsPro and the like.
With reciprocal tariffs and Brexit, trade as we know it is set to go through drastic changes. The future looks increasingly uncertain and unpredictable. The EU is being threatened by member states as many look to rebel against the EU as demonstrated in Britain, Denmark, Ireland, and Italy.
Meanwhile, America has an eye on bringing industry back to the land reversing decades of globalisation. In theory, this could see greater employment in the United States and the ceasing of declining living standards.
Trump has all the cards in any future tariff negotiations at least for now. He does face an increasing backlash from within, however, and this is arguably the EU's best hope at reducing the damage a tariff deal will bring.