The U.S. Commerce Department sent a report on Sunday to President Donald Trump that could unleash steep tariffs on imported cars and auto parts. Profits at German automakers are seen most at risk from tariffs on cars they export to the U.S. from Europe.

Infinity Tyres

U.S. government officials have not given any insights into the findings of the report by Commerce Secretary Wilbur Ross on whether vehicles built abroad pose a national security risk.

Automakers and parts suppliers are anticipating its recommendation options will include broad tariffs of up to 20 percent to 25 percent on assembled cars and parts, or narrower tariffs targeting components and technologies related to new energy cars, autonomous, internet-connected and shared vehicles. The Commerce Department alluded to a focus on emerging vehicle technologies when it opened the investigation.
Daimler’s Mercedes-Benz brand, BMW and Volkswagen Group have the most at stake from any U.S. trade penalties, even as they have reduced the need to bring in vehicles by building American plants. The U.S. is the second-largest market for Mercedes and BMW cars. VW Group’s VW, Audi and Porsche brands all sell vehicles in the U.S.

Trump and European Commission President Jean-Claude Juncker agreed in July to hold off on new tariffs during discussions to resolve an American-European dispute.

Trump has complained since mid-2017 about the German cars’ presence on U.S. streets and tweeted threats to tax German automakers’ vehicles.

Trump’s repeated tweets may indicate he is primed to add import fees especially targeted at cars from the bloc, according to analysts. “The risk that tariffs between Europe and the U.S. will come is rather high — I would say slightly more than 50 percent,” said Juergen Pieper, an analyst at Frankfurt-based Bankhaus Metzler. “Trump seems to have a real problem with German cars.”

The European Union estimated in June that a 25 percent tariff would add about 10,000 euros ($11,300) to the sticker price of a car made in the bloc and sold in the U.S.

If the U.S. imposed 25 percent tariffs, German car exports to the U.S. could fall by almost 50 percent, or about 17 billion euros ($19.2 billion), according to the Munich-based IFO Institute’s Center for International Economics.
Total car exports would fall by 18.4 billion euros, or 7.7 percent, the think-tank said. Exports from other sectors and to other countries would compensate these effects slightly, so that the total loss of exports would amount to about 11.6 billion euros, it said.
Car and component exports from the EU to the U.S. were $62.5 billion in 2017 while imports amounted to $17.7 billion, according to a Feb. 15 note by Bernd Weidensteiner, an economist at Commerzbank.
Germany accounted for $30.5 billion of the outbound figure, though only $8.5 billion of purchases from the U.S.
American imports have declined in recent years as German automakers established significant U.S. production but the German surplus of $22 billion is “a particular thorn in the side of President Trump,” Weidensteiner said.
U.S. backlash
The report is expected to unleash a massive lobbying campaign against tariffs from the U.S. auto industry.
The industry has warned that tariffs on millions would add thousands of dollars to vehicle costs and potentially lead to hundreds of thousands of job losses throughout the U.S. economy.
The Motor and Equipment Manufacturers Association, which represents auto parts suppliers, warned that tariffs will shrink investment in the U.S. at a time when the auto industry is already reeling from declining sales, Trump’s tariffs on steel and aluminum, and tariffs on auto parts from China.
“These tariffs, if applied, could move the development and implementation of new automotive technologies offshore, leaving America behind,” it said in a statement. “Not a single company in the domestic auto industry requested this investigation.”
A report from the Center for Automotive Research in Ann Arbor, Michigan, published on Friday showed its worst-case scenario of a tariff of 25 percent would cost 366,900 U.S. jobs in the auto and related industries.
U.S. light duty vehicle prices would increase by $2,750 on average, including U.S.-built vehicles, reducing annual U.S. sales by 1.3 million units and forcing many consumers to the used car market, the think tank’s report said.
Major automaker groups said last year the cumulative effect for the U.S. would be an $83 billion annual price increase and argued there was no evidence auto imports posed a national security risk.
Canada and Mexico each won duty-free access to 2.6 million vehicles as part of a new North American free trade deal even if the administration moves ahead with the tariffs.
The Commerce Department started its investigation in May 2018 at Trump’s request. Known as a Section 232 investigation, its purpose was to determine the effects of imports on national security and it had to be completed by Sunday.
Trump will have 90 days for any response and another 15 days to act if he says he will move forward with measures.
Trump said on Friday that tariffs protect industry and also help win trade agreements. “I love tariffs, but I also love them to negotiate,” he said.
Merkel defense
German Chancellor Angela Merkel took Trump to task before an audience of senior security officials in Germany at the weekend, calling his administration’s suggestion that European autos are a threat to U.S. national security a “shock.”
In a pointed defense of multilateral institutions ahead of a speech by U.S. Vice President Mike Pence at the Munich Security Conference, the German leader called for global trade and cooperation. The biggest BMW plant is in South Carolina, she said, not in the automaker’s homeland of Bavaria in southern Germany.
“Look, we are proud of our cars,” Merkel said Saturday. “We are allowed to be. And these cars are built in the United States of America.”
“If these cars, which are no less a threat than those built in Bavaria, are suddenly a national security threat to the U.S., then that’s a shock to us,” Merkel said, to loud applause.

Source: Auto News