Al­lies weigh con­ces­sions amid threat of car tar­iffs

Move comes with risks that could hurt U.S. auto in­dus­try.

The Atlanta Journal-Constitution - - MORE OF TODAY’S TOP NEWS - Jack Ewing, Ana Swanson and Motoko Rich

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.

KYODO NEWS VIA AP

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.

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