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.

Europe

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. 

Comments

Deep Snorkeler Kurpak Mon, 07/02/2018 - 10:25 Permalink

The Trump Recession Has Arrived

You knew it was coming:

1. the middle class trickling away

2. bubbles bursting in air, socialists' red glare

3. $200 million spent on Trump golf fun

4. corporate tax cuts hoarded

5. billionaire tax privileges hoarded

6. military dementia, imperial collapse 

7. economic data all fluffed up

8. stock market self-orgasm

In reply to by Kurpak

mophead Giant Meteor Mon, 07/02/2018 - 10:28 Permalink

Donald Drumpf was given orders by his elite handlers to accelerate the devaluation of the dollar and all world currencies and so he told this to the trade war partners before he started the tariffs:

"Look, we all have the same ‘uuuge problem: we’re seriously in debt and no way to pay it back, especially after I just cut taxes…. ARG! So let’s start a trade war. I, the orange clown in chief will stick it to my citizens, and you China/Canada/EU/Etc can stick it to your citizens too! Don’t believe me? If we start a trade war, all countries will want to win and green-light any and all escalations. And we know what escalations mean: even more tariffs! In the end, the Citizens will pay of course because a tariff is just another word for taxes AHAHAHA! The effect will be rising prices but we’ll blame it on each other and say it’s necessary to protect jobs! Brilliant! Psst… my constituents are low IQ many of which are backwoods racists and won’t notice a thing because they’re so strung up on immigration and will especially overlook this plain and logical outcome……… what do you all think, are your citizens dumb enough, want to join the war lol!?"

China: YES!

Canada: YES!

Mexico: YES!

EU: WE ARE THE KINGS OF TAXATION OF FUCKING COURSE!

ALL WORLD GOVERNMENTS = Winning

ALL WORLD CITIZENS = Losing

PUNKED AGAIN ZH DUMBASSES

 

In reply to by Giant Meteor

Cognitive Dissonance tmosley Mon, 07/02/2018 - 10:33 Permalink

They have never played with someone (Trump) who doesn't play by the established rules. International negotiations is all about gentleman's decorum, saving face and home-field politics. War is only broached when the next level of negotiations is desired.

With Trump, everything is negotiable....especially those things considered non-negotiable. And war is the first step, not the last step.

In reply to by tmosley

mophead IridiumRebel Mon, 07/02/2018 - 10:42 Permalink

"Bring their faggy Euro threats. German cars suck and anything else Euro is worse. I have an 84 Diesel Benz. Past the 90s, they all break down and are expensive as fuck."

Exactly what the elite want you to think - THEY ARE BRILLIANT

ALT RIGHTERS - LET THE WAR GAMES BEGIN ....... REACH DEEP, DEEP INTO YOUR POCKETS........... YOU WILL NEED EVERY LAST PENNY TO AFFORD WHAT WAS ONCE MUCH CHEAPER! ......WINNING....WINNING

"My American truck is far better."

Get ready to pay a lot more for American trucks.

In reply to by IridiumRebel

eatthebanksters IridiumRebel Mon, 07/02/2018 - 11:53 Permalink

According the the Atlanta Fed, the Trump economy is poised for 5% growth next quarter.  Trump could be in a trade war and stil do better than Obama's best year. Not worried.  Fuck those commie bureaucrats in Brussels that tell everyone in Europe what to do with their centralized planning.  If you want to break up the EU, start a trade war with Germany.

In reply to by IridiumRebel

Kayman eatthebanksters Mon, 07/02/2018 - 12:02 Permalink

What Europe, China, Canada, and Mexico appear to not comprehend, is EVERYTHING THEY MAKE AND SHIP TO THE USA, can be made, and usually was made right here.

The USA doesn't need to steal technology either.

Trump could give the USA a 30 year run just by bringing factories back home. 

And yes, Americans, with jobs, can afford stuff made in the USA.

In reply to by eatthebanksters

Slaytheist IridiumRebel Mon, 07/02/2018 - 17:37 Permalink

Not sure how far back they go with the color, but is your Benz Iridium Gray?  It's one of my favorites.  I have the Steel Gray color on mine.  Will replace with Selenite Gray if fortune allows.  On my third, all post 2010, and no significant issues or downtime. 

But I could as easily drive a US brand or made car, if EU wants to be soy.

In reply to by IridiumRebel

snblitz Cognitive Dissonance Mon, 07/02/2018 - 13:50 Permalink

who doesn't play by the established rules.

The established international rules :

  1. extract the wealth from the US worker & industries
  2. see rule 1

Who is doing the extraction is foreign countries, foreign interests, and their cronies the US politicians and their families and foundations.  All have their hand in the American laborer's pocket.

Just take this simple case:

The tariff as it is now (and has been for some years)

  • Auto Import Tariff: US 2.5% vs EU 10%

Trump has asked the EU to change this to:

  • Auto Import Tariff: US 0% vs EU 0%

The EU said no, so Trump is changing it to

  • Auto Import Tariff: US 10% vs EU 10%

If I was Trump I would suggest changing it to

  • Auto Import Tariff: US 30% vs EU 10%

The question is that if you consider the 3rd or 4th policy unfair, how do you not consider 1 to be unfair?

https://www.finitespaces.com/2018/02/15/taxes-and-trade-wars/

 

In reply to by Cognitive Dissonance

Winston Churchill josie0802 Mon, 07/02/2018 - 11:09 Permalink

Piss all in the grand scheme of things.It obviously hurts you because you keep posting about it, but thats exactly

why VAT is due at the point of entry.But why should you get that VAT charged rate as extra profit ?

Unless your products are in the final 0% rate band,you shouldn't.Level playing field.VAT is a tax on consumers,

its a cash flow and paperwork issue for businesses, only.

 

In reply to by josie0802

Kayman mophead Mon, 07/02/2018 - 12:10 Permalink

All European VAT taxation allows DEDUCTING the VAT paid by a business on all the INPUT costs against all the VAT collected on sales. But if you are an American manufacturer selling into Europe, you must pay the VAT to the Europeans, but don't get to deduct anything on your inputs.

Value-Added Tax was all dressed up as "more fair" and "more efficient" but no country every replaced, say, income taxes, with a value-added tax. They all instituted a VAT along with existing taxation. Ergo, VAT is just another bloody tax.

And is ultimately paid by the consumer, ie, it is just another sales tax, but it does employ more government employees.

In reply to by mophead

snblitz Winston Churchill Mon, 07/02/2018 - 15:06 Permalink

The confusion comes from the differences between raw materials, finished goods, and how the EU based company is structured.

If you read this whole comment the "secret" is revealed near the end.

I used to sell US$3000+ finished goods internationally including to EU countries.

In general the EU VAT is around 20% but varies by country and item.

That means my finished good sold into an EU country is $3600.

A company inside the EU making and selling a similar product would also have to charge the same VAT to their customers.  So the local retailer of the item would still be selling it for $3600. ($3000 + 20% VAT)

So what money ends up in whose pocket?

For me the importer, the customer pays $3600, I send $600 to the foreign tax agency, and I keep $3000.

For the domestic manufacturer, the customer pays $3600, he sends $600 to the tax agency, and he keeps $3000.

The trick lies in how the VAT is calculated and what happens when there are multiple stages in the production of the item handled by different companies.

The companies in the manufacturing chain only "pay" on the difference between the VATs they collected selling upstream, and the VATs they paid purchasing downstream.  For most this ends up being zero.

The above real world example applies to finished goods.

What happens if I import a raw material, or non-finished good?

Say I sell into the EU $1000 in some raw material.

I would generally have to collect a 20% VAT thus my raw material would sell to the company in the EU for $1200.

A domestic supplier of the same raw material would also have to collect a 20% VAT so their $1000 raw material item would also sell for $1200.

Now comes the final little trick, the one that upsets people.

What happens if the raw material producer and the manufacturer are the same company?

The EU based company & raw material producer  does not have to pay a 20% VAT on the raw material it produces for its own consumption.  That means the raw material costs $1000 and has no VAT.  Thus their final product can be sold at a lower price.  They would sell the final product for $2800 + 20% VAT or $3360.

If the combined EU company was to try to purchase the raw materials from abroad it would have to pay $1200.

So the VAT creates an incentive to produce large companies that can do all the manufacturing steps internally and within the EU and is a hidden tariff against small companies foreign or domestic.

So what if the foreign based raw material producer combines into a manufacturer too?  Then we end up back at the finished goods example, where the playing field is level.

The EU VAT is an anti-small business policy.  Big companies that can handle the entire process internally have a substantial advantage.  Do you see why huge conglomerates are all the rage these days?

In reply to by Winston Churchill