It is generally advisable not to make any forecasts that
concern Donald Trump. But when it comes to German cars he has been only too
consistent ever since his Playboy interview in 1990 when he promised "I’d
throw a tax on every Mercedes-Benz rolling into this country"
Trump yesterday started a process that could could end
with the imposition of a 25% tariff on imported cars by this time next year.
The US Department of Commerce has up to 270 days to investigate the matter,
and then Trump has 90 days to make a decision on the basis of the
Department's report. Congress is not involved.
We have the sense that this is not the last time we will
be writing about the 1962 Trade Act, under which Trump has been launching
this action. It includes the catch-all national security override which Trump
has also used to justify the steel and aluminium tariffs. There is no need
even to discuss the merit of this argument. But we don’t think that it is
possible, legally, to obtain a judicial override of a President’s invocation
of national security.
No country in the eurozone would be more affected than
Germany. German car makers exported half a million cars last year at a total
value of €20bn. FAZ runs an estimate by Gabriel Felbermayr, of the Ifo
Institute, who puts the total damage to the German economy at €5bn. That
number strikes us as too low. It does not sufficiently take into account all
of the total network effects: expectations of further trade tariffs, lower
investments in supply chains given those expectations, and financial effects
such as lower stock prices.
If the US were to impose tariffs on cars, the EU would
almost certainly retaliate. In seven days, Trump will decide whether to end
the EU's exemption from import tariffs on steel and aluminium. The
expectation in Brussels is that the exemption will be cancelled. The EU will
then impose retaliatory tariffs on a selected range of US products.
FAZ concludes that the result of the Department of
Commerce's investigation should be a foregone conclusion despite the promise
of a fair and transparent procedure. They took note of Trump tweeting that
there will soon be very good news for US automobile workers.
The decision will also test the solidarity of the EU,
since Germany is going to be the country most affected by this. France and
Spain export no cars to the US. Fiat owns Chrysler, but produces its vehicles
for the US market in the US itself.
The FT quotes some experts in the US as expressing hope
that these tariffs would never be introduced because the US consumer would
revolt, or the Republican Party would. It sounds to us like the
over-confident forecasts in 2016 by liberal US commentators who predicted
Trump would not become the Republican candidate, and then that he would never
be elected.
The trouble in this particular case is that the EU, and
Germany specifically, will find it hard to engage with Trump in a process of
deal-making. Germany is totally over-reliant on the good functioning of the
global trading system. Trump wants Germany to cancel the Nordstream 2 gas
pipeline, switch from US to Russian gas, and raise military spending. We see
no chance of a deal here.
