Picture: iSTOCK
Picture: iSTOCK

Brussels — After raising tariffs on $200bn of Chinese imports on Friday, US President Donald Trump could turn the heat up on Europe as soon as next week when he is due to make a decision about its cars.

For now, the EU, the world’s biggest trade bloc, is a bystander in the battle between the other two global trade super powers. That is worrying enough for an economy that is slowing.

European leaders and officials had long said they would not discuss trade arrangements under threat of action from Trump, which some likened to negotiating with a gun to the head. But the prospect of a US decision affecting some €47bn ($53bn) worth of car and automotive part exports has brought them to the table.

Trump received a section 232 investigation report in February, widely believed to have concluded that car and automotive part imports pose a risk to national security. The president’s 90-day deliberation period is due to end on May 18.

Car makers expect Trump to extend the deadline by up to six months, although he could still give a date to impose new duties if no deals with the EU and Japan are reached.

EU divisions

Some European officials think Trump will conclude that car tariffs are not worth the domestic pain.

“I predict President Trump will realise that the threat of automotive tariffs is better than actual tariffs, which would have a huge domestic impact,” said an EU official who has been closely involved in transatlantic discussion.

EU countries agreed last month to start formal trade negotiations with the US, notably on a deal to cut duties on industrial goods. If Washington imposes new trade-restrictive measures, those talks will be suspended and the European Commission would impose duties on €20bn of US goods.

The decision to hold talks even at this point has not been easy, with Germany — responsible for 57% of EU automotive exports to the US — in favour of a quick start, and France against it.

Johan Bjerkem, an analyst at Brussels-based European Policy Centre, thinks a Trump decision to impose car tariffs will end that division. “European countries may be more divided now, because some of them feel the pressure more than others. But once Trump goes ahead then he doesn’t have the same leverage.” 

Any announcement by Trump next week would also come at a time when European politicians are under greater pressure than usual to fight their corner, ahead of May 23-26 elections for the European parliament. Trump is unpopular in Europe, and mainstream parties are fending off challenges from nationalists.

No tit-for-tat yet 

Trump agreed last July not to impose punitive tariffs on imports of EU cars as both sides looked to improve economic ties. EU trade officials were in Washington this week discussing a possible launch of negotiations, although Brussels has said it will not meet a US demand to include farm products.

Meanwhile, EU steel and aluminium makers remain subject to punitive US import tariffs. The measures, also based on national security, prompted EU counter-measures, with increased tariffs on motorbikes, whiskey and other US products.

So far, there has been no tit-for-tat battle, although Trump warned in an April tweet that he would reciprocate for tariffs on Harley-Davidsons.

The European Central Bank (ECB) has long said protectionism is the single biggest threat to the eurozone economy, with fading confidence outweighing any boost in exports to countries other than the US.

Europe has also engaged in talks with the US and Japan to rewrite global trading rules to limit state subsidies and forced technology transfer, with eyes clearly on China.

Car tariffs would not send the EU rushing to Beijing, but would undermine these efforts, according to Guntram Wolff, director of the Bruegel think-tank. “So Trump would be shooting himself in the foot by making it more difficult for the Europeans to be supportive than [they are] now.”