Trump Threatens 20% Tariffs On All Cars Coming Into US; Euro, Car Stocks Slide

Fiat Chrysler, Volkswagen, and BMW shares are sliding following the latest shot across the bow from President Trump in the global trade wars.

This time he took some time off from China and aimed at the European Union, threatening a 20% tariff on all cars coming into the US from Europe...

Of course, it is just this kind of escalation that most worried Goldman Sachs and as SocGen's Albert Edwards notes below, this was not hard to foresee...

It doesn’t take a genius to see what’s coming down the line after completion of the current US probe into whether vehicle imports have damaged the US auto industry. President Trump has already told French President Macron to expect 25% tariffs on imported autos on the same “national security” grounds used to impose US steel and aluminium duties in March.

Currently, the US charges just 2.5% on car imports. This is lower than the EU’s 10% and China's 25%, although the latter will lower its tariff to 15% from 1 July. And this is the key difference with China (and Japan) in its trade relations with the US. Both these countries will ‘play the game’ and make concessions as well as conciliatory noises. Germany, in my years of observation, will not. It will push back robustly and the legalistic bent of the European Commission will see tit-for-tat tariffs being implemented far faster than anything seen in the current US/China trade spat.

My own observation from a recent two-week trip driving around Lake Tahoe, Yosemite and Sequoia Park is that US automakers appear to have been virtually wiped out in the saloon car market there, and it seems about 80% of saloon cars on the road there are Japanese and South Korean rather than European. But maybe that is just a west coast thing.

The widely divergent 10% vs 2.5% tariff rate on autos between the EU and the US may indeed look like an anomaly in favour of the EU, but it is nothing compared to the 25% protection US light trucks and pick-ups receive (includes two-seat SUVs). No wonder US automakers are clucking all the way to the bank as they dominate this segment of the market.

European manufacturers are getting whacked...

But it's not just automakers that are suffering, EUR is offered on the back of this...

And here's why...

According to a memo from the European Commission circulated to EU governments ahead of next week’s Summit of EU leaders, that was obtained by Bloomberg.

A 25% tariff would add around €10,000 to the sticker price of a European built car. Duties at this level could be expected roughly to reduce U.S. imports of car and car parts in half,

“Imports into the U.S. of cars and car parts were €294 billion last year, of which €58 billion originated in the EU”

“Tariffs would not result in more vehicles being sourced from US plants in the short term, as most are running profitably at or near full capacity. US companies moreover do not specialise in entry level vehicles or the parts of the luxury market that is supplied by foreign makers”

“U.S. car dealers, which employ 1.5 million workers (i.e. more than in car manufacturing), will squarely oppose the price increases that come with the introduction of import tariffs”

Very high costs should be doubled when U.S. trading partners apply countermeasures, to which they would be entitled, including outside the car sector”

“If the recent steel sector is any guide, an introduction of U.S. tariffs would be met with equivalent penalties imposed by affected trading partners. The figures are significant and could extend well beyond an additional damage of $300 billion of trade impacted”

“A crucial plank of a coherent political strategy for the EU over the next weeks and months will be to coordinate and develop responses together with the other main affected partners, i.e. Japan, Canada, and Mexico”

Over to you Mr.Juncker. Friend or Foe?

Additionally, BofA notes that while we are still many steps away from a full blown global trade war, the bad news is that the tail risks are rising and our work and the literature suggest a major global trade confrontation would likely push the US and the rest of the world to the brink of a recession.

So far, the trade actions taken by the Trump White House and trading partners have been relatively modest and in turn have had a limited impact on the economy and financial markets. The next round of $100-$200bn of tariff between US and China may prove more substantial. Further escalation like auto tariffs would lead us to reassess the US economic outlook.

In the meantime, we will be keeping a close eye on financial markets and confidence data as they will likely give an early indication on the potential impact to the economy.

Comments

forexskin Juggernaut x2 Fri, 06/22/2018 - 11:53 Permalink

most tariffs are are levied by our trade partners against their imports of US goods. how about they offer to eliminate theirs as well?

oh, and any industry / country that steals / permits violation of US IP? PENALTIES!

China insists on 51% chinese ownership of joint manufacturing partnerships? Tariffs based on that %.

And what's up with cheap goods shipped in from china with a total cost of less than the US postage to move the same goods within the US?

We are being hosed, this is a smokescreen, and the traitors filling their pockets at the expense of the US economy remain in the shadows.

/rant - neg away.

In reply to by Juggernaut x2

boattrash Bulgars Fri, 06/22/2018 - 11:02 Permalink

I look at it as "decentralization" of these EU Nations. He's just forcing they're hand to drop their tariffs, which in turn, drops the revenue of these Govts. that are being paid by the American Consumer.

It's really brilliant if you look at the big picture. Why do you think it pisses these foreign "leaders" off so bad? It cuts into the funding for their socialist fucking Gov, that's why.

I personally hate having to financially support socialism, here or abroad.

In reply to by Bulgars

Anon2017 boattrash Fri, 06/22/2018 - 11:44 Permalink

US tariffs on imported European made cars would be paid for by US importers and passed on to US consumers. The tariff revenue goes to the US Treasury not to European governments. If US consumers start buying fewer cars subject to high US tariffs, some foreign workers will lose their jobs, US consumers will have fewer affordable choices, US manufacturers will be able to raise their prices more easily and hire more US workers and the US government will have more revenue. The beggar thy neighbor policies of the Smoot-Hawley tariff of 1930 helped worsen the Great Depression and was a significant contributor to the start of WWII.      

In reply to by boattrash

Itdoesntmatter Anon2017 Fri, 06/22/2018 - 12:49 Permalink

point of order...THEORETICALLY the US will hire more workers....theoretically, it will hire more American workers...maybe they just build more robots, or maybe they go bankrupt because most of their supplies are imported....

Trump is an idiot surrounded by cowardly idiots...if the generals don't let him start a war, he is going to destroy the American economy...he wants to stay president...and thinks chaos will keep him there...

In reply to by Anon2017

Killtruck COSMOS Fri, 06/22/2018 - 10:45 Permalink

No shit! 

 

It's not just for Congressional insiders anymore!

 

btw - does this comment refer to those Mexican Blazers being built too? I mean, the Blazer was shit to begin with, then you build it in Mexico? THEN you put a 20% tariff on it? HAHAHA...I can't wait to talk to someone who buys one.

In reply to by COSMOS

JohninMK Herodotus Fri, 06/22/2018 - 12:25 Permalink

It takes years to set up a modern car factory from scratch. Ask Tesla.

US saloon car sales have dropped through the floor as the market wants SUV style vehicles now and its affecting all manufacturers not just US. The fastest depreciating car on the US market seems to be the BMW 5 series saloon. Ford seems to have made the decision to stop building them and to retool to build SUV and pickups instead.

In reply to by Herodotus