Allies weigh concessions amid threat of car tariffs
Move comes with risks that could hurt U.S. auto industry.
President Donald Trump’s threat to impose auto tariffs on imported cars has hit the United States’ trading partners in a sensitive spot, sending foreign leaders from Mexico to Japan racing to the negotiating table and, on Thursday, encouraging a significant concession by Europe.
The European Union’s top trade official said in Brussels 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, but only if the U.S. dropped its own similar tariffs. That 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, or if Europe will call his bluff.
Europe is willing to reduce “car tariffs to zero, all tariffs to zero, if the U.S. does the same,” Cecilia Malmstrom, the European commissioner for trade, told members of the European Parliament on Thursday. “We would do it, if they do it. That remains to be seen.”
Europe’s change in position is the latest indication that Trump’s threat to impose 25 percent levies on foreign-made Toyotas, Mercedeses and BMWs is forcing trading partners to give ground. 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.
On Monday, the Mexican government agreed to effectively cap exports of cars, SUVs and auto parts into the United States, subjecting any exports above those levels to Trump’s tariffs if they go into effect.
While Trump’s use of car tariffs as a cudgel may be winning concessions, it comes with big risks, potentially disrupting the international flow of billions of dollars in parts and vehicles in ways that could hurt the U.S. auto industry, raise sticker prices and cost jobs. Tellingly, U.S. carmakers are just as opposed to the tariffs as their Asian and European competitors and have expressed concern that the deal with Mexico could ultimately hurt consumers.
“If we run up against these quotas, we are going to make manufacturing more expensive in the United States. Period,” said Ann Wilson, senior vice president of government affairs at the Motor & Equipment Manufacturers Association.
Trump is unlikely to back down, given that his threats helped bring reluctant trading partners to the table in the first place. 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 if it did not get on board.
“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.
Cars at Yokohama port near Tokyo wait to be exported. Leaders from Mexico to Japan are racing to the negotiating table over the threat of U.S. tariffs on autos.