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EU-US trade war?

February 20, 2019 | Expert Insights

The EU has threatened retaliation if Donald Trump imposes punitive import tariffs on European cars, based on the findings of an investigation into whether they pose a threat to US national security or not.


A trade war is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. Increased protection causes both nations' output compositions to move towards their autarky position.

On March 2018, US President Donald Trump announced his intention to impose tariffs of 25% on imported steel and 10% on imported aluminium “for a long period of time”. Europe accounts for a large portion of steel and aluminium imports in the US and was not issued an exception to the tariffs unlike Canada and the UK. US Chamber of Commerce president Thomas Donohue said in a statement. “As we’re starting to see, tariffs could lead to a destructive trade war with serious consequences for US economic growth and job creation. The livelihood of America’s consumers, businesses, farmers, and ranchers are at risk if the administration proceeds with this plan.”


Brussels has issued a warning to Washington against imposing any new tariffs on car imports, a move which will dent European car maker exports. Margaritis Schinas, European Commission spokesperson, said Brussels was aware that the US commerce department had concluded its probe and handed its findings to President Trump.

“Were this report to translate into actions detrimental to European exports, the European Commission would react in a swift and adequate manner,” he told reporters on Monday. Mr. Schinas said the report had not been made public and he refused to speculate on its contents, but German Chancellor Angela Merkel’s spokesman Steffen Seibert said: “From what we’ve heard, [it] does conclude that European car imports constitute a threat to US national security.”

He called for the issue to be resolved through negotiations, saying “that is in our view the right way”, referring to ongoing trade talks between the US and European Commission.

Wilbur Ross, the US commerce secretary, on Sunday submitted his recommendations to Mr Trump, who now has 90 days to decide whether to act on the findings. The US president has previously threatened levies of as much as 25 per cent on foreign-made vehicles. If Mr. Trump acts on this threat, Germany’s car industry would be the main casualty. A report last week by the influential Ifo institute in Munich said German car exports to the US would halve long-term if 25 per cent import tariffs were imposed.

“These tariffs would reduce total German car exports by 7.7 per cent, or by €18.4bn,” said Gabriel Felbermayr, head of Ifo’s centre for foreign trade, adding that value creation in the German car industry would fall by €7bn or about 5 per cent. About 60 per cent of the total damage inflicted on the European car industry by such tariffs would be felt by Germany, Mr. Felbermayr said.

Ms. Merkel addressed the issue in a speech at the Munich Security Conference on Saturday. The chancellor said many of the German cars sold in the American market were actually built in factories in the US, noting that BMW’s largest plant was not in Bavaria, it's home, but in Spartanburg, South Carolina. “If such cars . . . are suddenly a threat to US national security then I find that shocking,” she said.

Mr. Trump has threatened tariffs on EU cars before but backed off after talks with European Commission president Jean-Claude Juncker in Washington in July. The two agreed to discuss how to reduce tariffs and other trade barriers relating to industrial goods other than cars, and to mount a joint push to reform the World Trade Organization. The deal between the two put car tariffs on hold while talks on a trade agreement proceeded. But progress on such an accord has been slow.


Our assessment is that the EU will prepare retaliatory tariffs as a safety net if President Trump acts on his threat of more taxes on cars. We believe that the EU will have no option but to respond as the US is one of its largest export markets and European car makers form the majority of total market share. 

Image Courtesy: User: Anonyme (, „Hyundai car assembly line“,


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