European automakers argue stocks would negatively impact the U.S. economy, as well as their businesses.
U.S. President Donald Trump posted a tweet this morning threatening a 20-percent tariff if “trade barriers long placed on the U.S. and its great companies” are not removed. This most recent threat escalates a standoff between the U.S. and the European Union, particularly as European automakers argue these tariffs will hurt the American economy as well as their businesses. Last month, the Trump administration ordered an investigation into whether automotive imports pose a “national security threat”.
Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!
— Donald J. Trump (@realDonaldTrump) June 22, 2018
Stocks fall as the news breaks
Reuters reported this morning that American and European auto stocks fell after President Trump made the tweet. The European Auto Stocks index fell 1.25 percent after the tweet emerged. Shares in Ford and GM went into the red as well, by 0.5 and 0.3 percent, respectively. European automakers including Daimler (Mercedes-Benz), Volkswagen and BMW also fell slightly.
Currently, the U.S. imposes a 2.5-percent tariff on passenger cars imported from the EU. There is a 25 percent tariff on imported trucks, which European automakers want to see removed in exchange for removing EU tariffs on imported American vehicles. Trump’s proposal to increase the 2.5-percent currently levied by tenfold drew sharp rebuke from lawmakers and business groups.
The U.S. Chamber of Commerce, an organization of U.S. businesses, stated it was “confident that vehicle imports do not pose a national security risk,” according to the Reuters report. The U.S. Commerce Department, an entity of the U.S. government, has until February 2019 to determine if imported cars constitute a security threat. Current Commerce Secretary Wilbur Ross said that the department may complete the probe by as early as July or August.
Effects of a 20-percent tariff on the industry
Last year, the United States accounted for 15 percent of Mercedes-Benz sales, according to Reuters. The market also comprises 15 percent of BMW sales. Volkswagen makes 5 percent of their global sales in the U.S.
If these tariffs go into effect, passenger cars will become much more expensive for American buyers. Daimler AG and BMW AG both build cars in the United States. However, they still import a number of models from the EU. Automakers like Volvo import all its vehicles from the European Union.
The European Union has also devised retaliatory tariffs against U.S. goods should the 20 percent levy on imported cars go into effect. In the end, these duties may continue to hurt automakers and shoppers, as manufacturers sell fewer cars in the U.S., and what cars they do sell become more expensive.