With the trade news justifiably focused on the ongoing trade war between China and the United States, less attention has been focused on the growing threat that the Trump Administration might impose high duties of up to 25% on European automobiles being imported into the United States. Automobiles have always served as potent national symbols of manufacturing strength, and so with an administration focused on projecting economic strength, it’s inevitable that the auto trade will be caught up.
European Auto Tariffs
There have already been some hits to this industry, with the section 301 tariffs stinging parts suppliers for Chinese-origin components and section 232 duties raising the costs of crucial steel and aluminum used in manufacturing cars.
But recently President Trump specifically threatened to impose more tariffs for the same primary reason for those put on China- to rectify the trade imbalance. The United States on balance imports more autos from Europe than are exported to be sold in Europe, and so the administration is considering remedying this through increasing import costs.
The fight over tariffs on autos goes back decades to 1964 to the “Chicken Tax,” when in retaliation for agricultural tariffs (including chickens) in Germany, president Lyndon Johnson imposed a 25% tariff on pickup trucks imported back to the USA. While the European tariffs eventually fell, the duties on European trucks have remained as a boon to US truck-makers ever since, to the chagrin of European manufacturers.
European Auto Companies in USA
A tricky part of these negotiations is the big presence that European auto companies have set up in the United States. German automaker BMW operates its largest worldwide factory in South Carolina; Germany’s Mercedes-Benz operates a big factory in Tuscaloosa, Alabama; Volkswagen’s Chattanooga Assembly Plant in Tennessee produces 150,000+ vehicles annually; Sweden’s Volvo runs a large plant also in South Carolina; and Italian-owned Fiat Chrysler operates five factories across Michigan, Illinois, and Ohio.
All of these states except Illinois were those whose electoral votes went towards President Trump’s 2016 election and will be critical to a re-election, something the Administration is sure to be keenly aware of. Already several of these manufacturers have said that tariffs could have negative effects on their employment or expansion, so options must be considered carefully.
At The G20
At the recent G20 meeting in Argentina, American and European leaders met to discuss the potential fallout from new tariffs on autos, many seeking to avoid further disruption. During these meetings CEOs of automakers met with President Trump, Wilbur Ross, Larry Kudlow, and Robert Lighthizer. Spokespeople for the firms stated that they believed the immediate threat of new tariffs was considerably reduced. Both sides reported making good progress on negotiations that would avoid tariffs and possibly increase investment into US plants, but no firm agreements have been announced.
Meanwhile, just recently China announced that their 40% duty imposed on US-made autos would be reduced to only 15%, sending the stocks of US automakers higher on the prospect of tapping the world’s largest market for personal autos.
Outlook
With the good vibes coming out of G20 and China choosing to reduce their import tariffs, it seems that for the very immediate future we may avoid further duties, but with an Administration focused intently on trade and President Trump referring to himself as a “Tariff Man,” it would be prudent to keep an eye on this space, as it remains a major point of contention.
If you’re concerned about the effect that tariffs might have on your business, or think you might be entitled to a refund through duty drawback, please contact our VP of Sales Andrew Galloway at agalloway@jmrodgers.com or 973-726-5340.
