EU Threatens $300 Billion Retaliation If US Moves Ahead With Auto Tariffs

More than a week after President Trump threatened to slap a 20% tariff on auto imports from the European Union, Brussels has issued a written warning to the US Department of Commerce with a threat of its own: If the Trump administration moves ahead with the auto tariffs, the bureaucrats in Brussels won't hesitate to respond with tariffs on $300 billion in US goods, according to the Financial Times. The threat comes as Trump doubled-down on his trade threats in an interview with Fox Business's Maria Bartiromo that aired Sunday morning, where Trump criticized the EU's $151 billion trade surplus. Trump initially threatened to impose the 20% tariffs if the EU doesn't eliminate trade barriers to US automotive imports.

The warning marked the first time that Brussels has filed a written submission with the Commerce Department, which is presently considering Section 232 auto tariffs. In the letter, which was obtained by the FT,   Brussels warned that Trump's threatened auto tariffs would risk sparking a global trade war that could ultimately harm employment in the US and slice billions of dollars off US GDP. That echos a warning from GM, issued in comments to the Commerce Department's investigation, where the carmaker said tariffs would lead to a "smaller company."

In a sign of the EU’s exasperation at Mr Trump’s confrontational trade policy, which has already stoked tensions over steel and aluminium, the document said the move "could result in yet another disregard of international law" by the US. It said imposing the car tariffs would not be accepted by the international community and would "damage further the reputation" of the US.

A trade group representing global automakers recently warned that Trump's threatened tariffs could raise prices for US consumers by up to $6,000 per car. The $300 billion figure proposed by the EU is roughly equivalent to the value of US imports of cars and parts, which reached $330 billion last year, according to the FT.

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The EU also argued that the Trump administration's national security concerns - which it has used to justify its aggressive trade policy under Section 232 of the Trade Expansion Act - has "no basis in fact."

The EU has also firmly rejected Mr Trump’s use of national security arguments to justify restrictive trade measures, saying it has no basis in fact and risks undercutting the entire rules-based system of international trade.

This development harms trade, growth and jobs in the US and abroad, weakens the bonds with friends and allies, and shifts the attention away from the shared strategic challenges that genuinely threaten the market-based western economic model,” the document said.

The document, submitted to US authorities on Friday, marks the latest step in the EU’s campaign to get Mr Trump to step back from the brink before it is too late.

Finally, the EU devoted part of its letter to what appeared to be subtle political threats, pointing out that EU-based car companies operate plants in several Republican-dominated states across the Southern US, meaning that Trump voters would likely absorb the brunt of the EU's retaliation. The implication is clear: it'd be a shame if something were to happen to those jobs. But even if the EU chose not to retaliate, the tariffs threatened by Trump would still harm the US by knocking $14 billion off of US GDP due to "market fragmentation."

The commission document said that, according to its “internal analysis” and other expert studies, the tariffs would be an “own goal” for the US economy even before other economies retaliated. The interconnectedness of the car industry, and its high degree of regional specialisation, mean that imposing additional 25 per cent tariffs on imports would cause a hit to US gross domestic product “in the order of” $13bn-$14bn, according to the document.

The paper, submitted by the EU’s representation in Washington, also underlines that EU-owned car companies account for more than a quarter of US car production, with plants "across the country, including in South Carolina, Alabama, Mississippi and Tennessee" — all strongly Republican states — and that the majority of this production was for export.

EU Commission President Jean-Claude Juncker will have a chance to follow up on these threats in person when he travels to Washington later this month. And EU officials have said they will take part in a two-day Department of Commerce hearing set to begin July 19.