Europe Says Trump Tariffs Would Hurt Both Sides.
“It is somewhat ironic that BMW looks poorly placed given it is a net exporter from the U.S”
Europeans were circling the wagons for the automotive industry and free trade after news at the weekend that U.S. President Trump had threatened to raise tariffs on their cars sold in America.
At the Geneva Car Show, the European Automobile Manufacturers Association, known by its French acronym ACEA, released a statement outlining the importance of the industry, and saying how the European industry and its U.S. counterparts work very closely.
“ACEA supports trade that is both free and fair, and respect for the international trade rules upon which these principles are based,” it said in a statement.
Both industries make huge contributions to their respective economies.
“E.U.-U.S. auto-related trade currently accounts for some 10% of total trade between the two regions. Today, the U.S. is the third biggest exporter of cars to the E.U. in terms of value, representing a 15.4% share of E.U. imports in 2017. The U.S. is the number one destination of E.U. car exports both in terms of volume, with a 20.4% share of E.U. exports in 2017 and of value with a 29.3% share,” ACEA Secretary General Erik Jonnaert said.
“It is important to note that European manufacturers do not only import vehicles into the US, but that they have a major manufacturing footprint there, providing significant local employment and generating tax revenue. Indeed, some European manufacturers have their biggest plants not in the E.U, but in the U.S.,” Jonnaert said.
Germany’s automotive lobby group, the VDA, joined in, saying Trump three risked creating a lose-lose situation for both sides.
“We’re watching the current developments with great concern,” it said in a statement.
The VDA said German car factories in the U.S. produced 804,000 vehicles last year, with 430,000 exported. The number of German cars imported into the U.S. has fallen about 20% since 2014 to 494,000, the VDA said. Since 2013 Mercedes, VW and BMW have added 5,700 jobs in the U.S. to 36,500.
If Trump does act with big taxes, BMW will be the most vulnerable, according to Citi Research.
“It is somewhat ironic that BMW looks poorly placed given it is a net exporter from the U.S. – in 2017 it sold 354,000 cars, but produced 371,000 in the U.S. In 2019, BMW will start production of the 3 series in Mexico so if the import tariffs are only on European made cars then BMW’s problems may be short-lived,” said Citi Research analyst Michael Tyndall.
“Both of its German peers also have localized production in both the U.S. and Mexico. This production was set-up to combat both foreign exchange fluctuations and in VW’s case to localize its offerings to U.S. tastes/pricing, but they could serve the added benefit of a hedge to any import tariff,” Tyndall said
“All of this assumes NAFTA remains intact, which is not guaranteed,” he added.
If Europe starts protesting about higher tariffs, the U.S. will remind it that the U.S. tariff is currently only 2.5% on Europe’s auto imports compared to Europe’s 10% tax on U.S. car exports. That is an anomaly that’s needed to be corrected for years.
How does the ACEA explain that anomaly?
“If a country does not have a trade agreement in place with the U.S., the standard tariff for importing cars to the U.S. is 2.5%. For pickup trucks and commercial vans, the tariff is 25%. On the other hand, the E.U. charges a flat rate of 10% on imported cars for all third countries, and of 10 or 22% on commercial vehicles. As such, these tariff rates are not the result of a specific agreement between the E.U. and the US, they are just their standard rates,” an ACEA spokesman said.
Talks between the E.U. and the U.S. seeking a free trade deal, known as TTIP, were halted following Trump’s election in 2016 but by mid-2017, representatives of both sides expressed willingness to resume the negotiation.
There’s no time like the present.