EU warns US of boomerang effect if Trump imposes car levies

Parked cars are pictured at the car terminal at the port of Valencia, Spain May 29, 2018. (Reuters pic)

BRUSSELS: The European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on US$294 billion of US exports.

In a 10-page submission to the United States Commerce Department sent last Friday, the European Union said tariffs on cars and car parts were unjustifiable and did not make economic sense.

The Commerce Department launched its investigation, on grounds of national security, on May 23 under instruction from President Donald Trump, who has repeatedly criticised the EU over its trade surplus with the United States and for having higher import duties on cars. The EU has a 10% levy, compared with 2.5% for cars entering the United States.

Trump said last week that the government was completing its study and suggested the United States would take action soon, having earlier threatened to impose a 20% tariff on all EU-assembled cars.

The European Commission, the EU executive that handles trade for the bloc, said on Monday it was trying to convince its US counterparts that imposing such tariffs would be a mistake.

“We’ll spare no effort, be it at the technical or political level, to prevent this from happening,” a spokesman for the Commission told reporters, adding that Commission President Jean-Claude Juncker’s trip to Washington later this month would seek to stop any new US tariffs.

The bloc exported 37.4 billion euros (US$43.6 billion) of cars to the United States in 2017, while 6.2 billion euros worth of cars went the other way.

The European Union says that for some goods, such as trucks, US import duties are higher.

In its submission, the EU said EU companies make close to 2.9 million cars in the United States, supporting 120,000 jobs – or 420,000 if cars dealerships and car parts retailers are included.

Imports had, it said, not shown a dramatic increase in recent years and largely grown alongside the overall expansion of the US car market, with increased demand that could not be met by domestic production.

The submission said that tariffs on cars and car parts could undermine US auto production by imposing higher costs on US manufacturers. The EU had calculated that a 25% tariff would have an initial US$13-14 billion negative impact on US gross domestic product with no improvement to its current account balance.

Assuming counter-measures along the lines of those taken in response to existing US import tariffs on steel and aluminium, up to US$294 billion of US exports – 19% of overall US exports – could be affected, the submission said.

The submission also said that the link between the automotive industry and national security was “weak”. Military vehicles, such as the Humvee, were made by different, more niche producers.