The trade war that could cause havoc for carmakers

While the European Union has recently been building up plans to mitigate against the risks from a no-deal Brexit in April, there is another thundering trade threat looming from across a much bigger sea: US President Donald Trump appears to be planning for an epic trade war against Europe, and it is mostly focused on cars.

Transatlantic car trade a national security threat?

Although officials in Brussels and Washington have been working to avoid a trade war, there are fears that their efforts will not be enough to satisfy a president who has complained bitterly for decades about what he sees as unbalanced and unfair competition from European carmakers. If the negotiations fail, it could have devastating consequences not just for carmakers in Europe, but in the US – and add to the troubles facing an industry that is already struggling to deal with emissions rules.

[Pool/EPA/EFE]

The EU and US trade negotiators are trying address Trump’s complaints through a broad deal that covers many different sectors. They began their talks last year after Trump first threatened to hit EU car imports worth €40 billion with tariffs – but he was talked out of it by European Commission President Jean-Claude Juncker last July.

But there is still a risk that Trump will go ahead with his threat. A report from the US Department of Commerce is questioning whether the transatlantic car trade poses a national security threat – a question that EU officials describe as absurd. Trump now has 90 days to decide how to act on the findings.

The EU fears that his decision – like many others taken over the past two years – is unlikely to be based on cold hard facts, but more on a sense of humiliation at the hands of European carmakers.

Automotive industry extremely disappointed

The provisional deal struck by Trump and Juncker last July was tightly focused: the two leaders said their negotiations should aim at “zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods”. But the US now wants to go far further, moving into sectors such as public procurement and maritime services (while keeping their own markets closed), and for its farmers to the European agriculture market — something the EU firmly rejects.

At the same time, last year’s unresolved transatlantic trade tiff, on steel, is also affecting carmakers. EU member states have already signed off on three-year, 25% safeguard measures on steel imports, which make the EU reaction to Trump’s March 2018 tariffs on steel semi-permanent.

The European Automobile Manufacturers’ Association (ACEA) said it was “extremely disappointed” by the move, saying the measures did not take into account the needs of downstream users of steel, such as the automotive sector. The association said it fears that European steel prices could rise and that European mills would not be able to fulfil orders with a restricted import system.

All the while, carmakers have been waiting nervously to learn about their fate. German manufacturers including Volkswagen, BMW and Mercedes have pointed out that they employed 8,000 new American workers in 2018, produced more cars in the US than they imported from Germany, and at the Detroit motor show in January, VW said it will build its new e-SUV in Chattanooga, Tennessee.

But Trump is feeling embattled. He has lashed out at his apparent allies on trade, currency rates and even NATO. All the arguments from EU leaders, officials and carmakers are logical, but they have had little impact so far on the president.