European automakers stress a 25-percent tariff will hurt the U.S. economy, not help it.
Automakers in Europe aren’t particularly excited about a looming trade war between the U.S. and the EU. The Trump administration proposed lodging a 25-percent tariff on vehicles imported from the EU in an attempt to bolster American-made cars and create US jobs. However, European automakers believe the tariffs will do grievous harm, and not just to their bottom line. If the U.S. actually imposes these duties – in the spirit of recent 25-percent taxes on steel and 10-percent on aluminum imports to the U.S. from Mexico, Canada and the EU – it will harm the U.S. economy as well.
Volvo boss Håkan Samuelsson said of the tariffs to The Independent, “Cars would be more expensive. We’d probably sell fewer cars – and that would generate less growth in the economy. The whole growth in the economy in the last 100 years has been based on comparative advantage. If we stop doing that – that’s not smart.” Volvo sold 82,000 cars in the U.S. last year, all of which were imported from the EU. The company did just open a new plant in South Carolina to produce the 2019 S60, but there are two problems. The plant, even at maximum capacity, will only produce around 10 percent of Volvo’s total U.S. sales figures. The plant also imports its engines from the EU, which would still be subject to the 25-percent duties.
German automakers support dropping EU import tariffs…on one condition
While European automakers face stiff taxation on importing their cars into the U.S., that hasn’t stopped their desire to broker a deal. For all the automakers in the EU, the U.S. is a critical market, and none can afford to lose the opportunity to sell cars in the U.S. over massive tariffs. Automotive News reports that German automakers are willing to abandon taxes and import duties on U.S. cars. Currently, the EU taxes imported American cars at 10-percent, while also imposing a 2.5-percent import duty. If President Trump backs off his threats to impose a border tax on auto imports from Europe, the manufacturers will support dropping all taxes on U.S. cars.
Richard Grenell, U.S. Ambassador to Germany, reportedly met with Daimler AG, BMW and Volkswagen Auto Group. Automotive News also points out that all three manufacturers have assembly plants in the U.S. and employ American workers.
Europeans: Scrap 25 percent import tax on pickups, SUVs and big vans
A 25-percent tax has been in place on imported pickups, SUVs and big vans since the Johnson administration. In 1963, the US imposed the tax, also known as the “chicken tax” against the Europeans for their tariffs on imported chickens. German automaker executives supported dropping US import tariffs if the US scraps this import tax. On one hand, dropping the 25-percent tax would open the door for automakers to import European-sourced trucks into the U.S. However, such a move could alienate U.S. auto workers at truck plants. It would also impact domestic truck sales, since European manufacturers could sell trucks they’ve only sold abroad to this point.
Manufacturers like BMW get around the 25-percent duty by manufacturing their X series crossovers in South Carolina, then exporting them abroad. Mercedes-Benz also manufactures the GLE, GLS and the GLE coupe at their Tuscaloosa, Alabama plant.
Failing President Trump’s relenting on the 25-percent import tariff on cars imported from the EU, the European Commission may move ahead with further duties on American productions. The commission already adopted a set of $3.2 billion tariffs against U.S. goods in response to the steel and aluminum tariffs.