BRUSSELS — Hit back, but let’s keep channels open to talk is the message coming out of Brussels and European Union capitals in the wake of United States President Donald Trump’s threat to hit all car imports with tariffs.
But if the EU’s past record on trade disputes involving key economic sectors is anything to go by, countries will come under increasing pressure to diverge as the car tariffs get painful.
Trump announced Wednesday evening that the U.S. will impose 25 percent tariffs on all vehicles imported into the country, going into effect on April 2.
An additional 25 percent tax on automotive parts will start in May, the White House said, marking a steep escalation in the transatlantic trade war that will damage an already struggling automotive sector.
European Commission President Ursula von der Leyen was quick out the gate with a response, putting out a statement before Trump had finished speaking. But what it delivered in speed, it lacked in specifics.
“We will now assess this announcement, together with other measures the U.S. is envisaging in the next days,” she said. “The EU will continue to seek negotiated solutions, while safeguarding its economic interests.”
Berlin and Paris used more bellicose language, saying the bloc needs to retaliate while reiterating the need for negotiations to continue.
The EU should “not back down in the face of the USA. Strength and self-confidence are required,” said Germany’s acting Economy Minister Robert Habeck, while backing off in the next sentence, promising to support the Commission in reaching a negotiated deal.
“The only solution for the European Union will be to raise tariffs on American products in response,” French Finance Minister Eric Lombard said in a radio interview on Thursday, denouncing the U.S. for “completely changing its economic policy in a very aggressive way.”
There will be pain from Trump’s tariffs. European automakers exported 749,000 cars to the U.S. last year, worth €38.5 billion, according to the European Automobile Manufacturers’ Association.
European carmakers saw their stock prices plunge on Thursday.
Hildegard Müller, the head of Germany’s powerful VDA car lobby, called Trump’s measures “a fatal signal for free and rules-based trade” and appealed for “immediate negotiations.”
When the rubber hits the road
But so far, efforts to talk Trump down have failed.
EU trade chief Maroš Šefčovič flew to Washington this week to meet with Trump’s trade representatives. Less than 24 hours later, the president unveiled his car tariffs.
For now, the message coming out of Europe is fairly unified. But that may begin to fray as the costs start to accumulate — especially as some countries, like Germany, will be hit hard, while other like France, Spain and Italy, which export few cars to the U.S., will suffer much less.
There are recent examples of European unity on trade crumbling.
After Trump threatened to hit the EU with 200 percent duties on booze as part of a dispute over steel and aluminum tariffs, France argued against targeting American products like bourbon and jeans, fearing U.S. retaliation hitting its lucrative wine and Champagne exports.
Berlin has already gone to bat for its carmakers, lobbying frantically last year in a failed effort to stop the EU from slapping new duties on made-in-China electric vehicles.
“Discussions on the anti-subsidy [duties] on Chinese EV imports last year showed how difficult it is to come to a common European position if the interests of German carmakers are at stake,” said Nils Redeker, deputy director of the Jacques Delors Centre think tank in Berlin.
While carmakers in the line of fire are pleading for a negotiated solution, their interests don’t completely overlap with those of Germany. The country’s foreign trade association said, “We cannot leave this unilateral, regulator behavior unanswered,” calling on the EU to target American Big Tech companies operating in Europe.
Trade turmoil
The U.S. accounts for 13 percent of Germany’s total automotive exports, representing a critical lifeline as the automakers’ revenue in China — their most important market — is under pressure from cheaper and better Chinese EVs.
Volkswagen, whose premium carmaker Porsche manufactures all of its models in Europe, but sells the most models in the U.S., is particularly vulnerable.
But it’s not just German carmakers that will be harmed by the new tariffs.
Thanks to a long-standing North American free-trade agreement, automakers and their suppliers have developed a complex supply chain with parts and cars often crossing between the U.S., Mexico and Canada multiple times before landing at a dealership. European carmakers are part of that trade.
“Modern vehicle manufacturing is not confined to national borders. Automotive transatlantic value chains today are deeply interwoven,” Matthias Zink, president of automotive supplier lobby CLEPA, said in a statement. “These protectionist tariffs risk breaking apart a trading partnership built over decades.”
Trump is also threatening to hit back against any countries that retaliate against next week’s tariffs.
The trade war could not come at a worse time for Germany’s auto sector, which is “facing a perfect storm” both in China and in the U.S., said Redeker of the Jacques Delors Centre.
“German manufacturers are now at risk of being shut out of the U.S., as well,” he said. “In effect, Germany’s two most important export markets outside the EU are drying up — each for different reasons, but at the same time.”
Nette Nöstlinger, Camille Gijs, Joshua Berlinger and Oliver Noyan contributed reporting.
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