Tariffs force U.S. allies to table
FRANKFURT, Germany — President Donald Trump’s threat to impose tariffs on imported cars is working, sending foreign leaders from Mexico to Japan racing to the negotiating table to make deals.
Europe on Thursday offered one of the most significant concessions, saying it would cut its existing penalties on automobiles to zero, provided the United States dropped its own tariffs.
The president’s combative approach to trade is a risky strategy, leaving U.S. companies vulnerable to both tariffs in the United States and retaliatory measures by other countries. Car manufacturers like General Motors and Ford depend heavily on a global supply chain, with parts coming from China, Europe, Mexico and Canada. Tariffs could raise sticker prices and cost jobs.
But the cudgel, 25 percent levies on foreign-made cars, is a powerful one. Compared to the measures on steel and aluminum, they have the potential to do significant
damage to a big, global industry that helps drive many economies.
Trump is betting that the United States has a stronger position that will force trading partners to blink. Europe is facing a slowdown, while the U.S. economy is surging ahead.
Against that backdrop, the European Union’s top trade official on Thursday said that the bloc would be willing to remove all tariffs on cars and other industrial products as part of a limited trade deal with the United States, if America did the same. Europe had previously expressed a willingness to eliminate tariffs on industrial goods, but excluded cars, and said any deal had to be part of a broad free-trade agreement.
“We would do it, if they do it,” Cecilia Malmstrom, the European commissioner for trade, told members of the European Parliament on Thursday. “That remains to be seen.”
‘Gun to the head’
The offer will require Trump to decide whether he is willing to eliminate U.S. tariffs, like a 25 percent tax on imported trucks, as he has previously said he is willing to do. If not, Europe would have to call his bluff.
Mexico, too, has been willing to deal. On Monday, the Mexican government agreed to effectively cap exports of cars, sport utility vehicles and auto parts into the United States, subjecting any exports above those levels to Trump’s tariffs if they go into effect.
Mexico, Canada and Europe initially insisted that they would not negotiate about trade “with a gun to the head.” But existing tariffs on steel and aluminum, and the specter of tariffs on automobiles, helped change their minds.
“The European Union’s original position was that they would not negotiate with the United States about anything to do with trade policy until the U.S. removed those tariffs,” said Joanna Konings, a senior economist at the Dutch bank ING who specializes in trade.
When the Commerce Department began the procedure to expand tariffs to include cars, Konings said, “that was what changed the position of the EU.”
The threat of car tariffs, coming on top of Trump’s steel and aluminum tariffs, also sped up negotiations on revising the North American Free Trade Agreement. On Monday, Trump said he had struck a deal with Mexico and threatened to leave Canada behind and hit it with auto tariffs.
“I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in,” Trump said.
Canadian officials responded by cutting short a trip to Europe and rushing to Washington, where they are currently working to reach an agreement.
Car companies, which are already paying higher prices for steel and aluminum as a result of Trump’s tariffs, have been universally opposed to the prospect of further tariffs on cars and car parts. They argue that the measure would disrupt the global supply chains on which they depend and damage their ability to compete in foreign markets.
Dead free-trade deal
Europe’s willingness to compromise Thursday reflected the danger that car tariffs pose to Europe, in particular to Germany, the continent’s largest economy and a major automotive exporter.
In July, Jean-Claude Juncker, the president of the European Commission, the EU’s executive arm, struck a deal with Trump that called for talks on a broad deal, while postponing tariffs on cars. Europe and the United States also agreed to work on reform of the World Trade Organization.
Some analysts interpreted the agreement between Juncker and Trump as an attempt to reopen talks on a comprehensive freetrade deal, which stalled in the closing days of the Obama administration and died after Trump’s election.
But Malmstrom’s comments on Thursday signaled that the European Commission was willing to pursue a less ambitious pact in order to avoid further escalation of the trade war with the United States.
“We are not restarting TTIP,” she said, referring to the Trans-Atlantic Trade and Investment Partnership, the pact that foundered.
In Asia, the threat of auto tariffs is causing more severe complications.
Japanese government officials continue to resist the Trump administration’s invitation to enter bilateral trade talks or offer any concessions. But Japanese auto industry leaders are increasingly concerned about the fate of the 1.7 million cars that Japan exports to the United States annually.
Industry analysts say that if the Trump administration imposes a 20 percent tariff on Japanese auto exports, manufacturers’ costs could go up by $8.6 billion.