EU to respond to any US auto tariff move

Trump threatened to impose 20 pct tariff

PARIS, June 23, (RTRS): The European Union will respond to any US move to raise tariffs on cars made in the bloc, a senior European Commission official said, the latest comments in an escalating trade row.

US President Donald Trump on Friday threatened to impose a 20 percent tariff on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.

“If they decide to raise their import tariffs, we’ll have no choice, again, but to react,” EU Commission Vice President Jyrki Katainen told French newspaper Le Monde.

“We don’t want to fight (over trade) in public via Twitter. We should end the escalation,” he said in the comments published on Saturday.

The European Autos Stocks Index fell on Friday after Trump’s tariff threat. Shares US carmakers Ford Motor Co and General Motors Co also dropped.

“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!” Trump tweeted.

The US Commerce Department has a deadline of February 2019 to investigate whether imports of automobiles and auto parts pose a risk to US national security.

US Commerce Secretary Wilbur Ross said on Thursday the department aimed to wrap up the probe by late July or August. The Commerce Department plans to hold two days of public comments in July on its investigation of auto imports.

Trump has repeatedly singled out German auto imports to the United States for criticism.

Trump told carmakers at a meeting in the White House on May 11 that he was planning to impose tariffs of 20 or 25 percent on some imported vehicles and sharply criticized Germany’s automotive trade surplus with the United States.

The United States currently imposes a 2.5 percent tariff on imported passenger cars from the EU and a 25 percent tariff on imported pickup trucks. The EU imposes a 10 percent tariff on imported US cars.

The tariff proposal has drawn sharp condemnation from Republican lawmakers and business groups. A group representing major US and foreign automakers has said it is “confident that vehicle imports do not pose a national security risk.”

The US Chamber of Commerce said US auto production had doubled over the past decade, and said tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”

German automakers Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States. BMW is one of South Carolina’s largest employers, with more than 9,000 workers in the state.

The United States in 2017 accounted for about 15 percent of worldwide Mercedes-Benz and BMW brand sales. It accounts for 5 percent of Volkswagen’s VW brand sales and 12 percent of its Audi brand sales.

On Friday, Trump threatened to impose a 20 percent import tariff on all European Union-assembled vehicles, a move that could upend the industry’s current business model for selling cars in the United States.

“The tariffs, if they materialize, would call into question the business case for many niche models we currently sell in the United States,” a senior executive at one carmaker told Reuters on Friday. “Convertibles are a particular headache. With Brexit and US tariffs, this market could shrink further.”

The executive said convertibles may not disappear if car makers can forge alliances to share production costs, or design vehicles that are less expensive to build alongside high-volume models.

Because of high pollution and scorching sunshine, convertibles are not selling in Asia, leaving the United States, Britain and Germany as the largest potential growth markets. Potential tariffs between the EU and Britain after Brexit and yet more tariffs between Europe and the United States will shrink the market further, auto executives fear.

German automakers BMW AG, Daimler AG and Volkswagen AG operate assembly plants in the southeastern United States. Those plants concentrate on building high-volume models, mainly SUVs and crossovers and some sedans. But they lack the flexibility to quickly and inexpensively shift production from one model to another in response to rapidly shifting tariff threats, industry experts said.

“The tariff discussion highlights why this flexibility is necessary,” said Ron Harbour, a manufacturing consultant with Oliver Wyman. “Those that don’t have it will suffer.”

A tariff of up to 25 percent would destroy the business case for foreign carmakers to export to the United States models such as the $88,200 Mercedes SL roadster or Audi S5 Cabriolet - and deliver a 4.5-billion euro ($5.24 billion) hit for Germany’s premium manufacturers, analysts at Evercore ISI said.

Convertible sales already are dwindling in the United States, according to figures compiled by LMC Automotive. Sales fell from 177,000 in 2012 to 127,000 in 2017, and are expected to drop further to 113,000 by 2019, even without a tariff increase.

Mercedes is expected to sell about 20,000 convertibles this year in the United States and BMW fewer than 16,000, LMC projected.

“We expect convertible sales would be hit quite hard” by higher import tariffs, said LMC Senior Vice President Jeff Schuster.

German automakers face broader threats from Trump’s shift away from decades of US policy supporting open trade. A US trade war with China could hit exports of US-built utility vehicles made by BMW and Mercedes, said Kristin Dziczek, vice president at the Center for Automotive Research.

In addition, the two German automakers must contend with proposed tariff increases on imported parts and steel, which could boost the cost of their US-built vehicles.