Trump trade threats alarm German carmakers, hit investor morale

FRANKFURT/BERLIN (Reuters) - German car companies urged policymakers on Monday to avoid a trade war with the United States “at all costs” after U.S. President Donald Trump threatened to tax car imports from the European Union.

FILE PHOTO: Employees of German car manufacturer Porsche assemble sports cars at the Porsche factory in Stuttgart-Zuffenhausen, Germany, January 26, 2018. REUTERS/Ralph Orlowski

The United States is the second-biggest export destination for German auto manufacturers after China, while vehicles and car parts are Germany’s biggest source of export income.

“Punitive duties can’t be the answer,” Bernhard Mattes, president of Germany’s VDA automotive industry association, said in a statement.

“A trade war between the USA and Europe must be avoided at all costs. In such a trade war there are only losers on all sides.”

Analysts fear a full-blown trade war between the United States and Europe could cut growth in Germany, the biggest EU economy, by up to 1 percentage point.

This concern was also mirrored in a Sentix survey on Monday that showed investor morale in the euro zone fell further in March due to concerns about rising protectionism under Trump.

Sentix’s index for the euro zone dropped to 24.0 in March from 31.9 in February, far short of the average forecast of 31.0 in a Reuters poll. It marked the second consecutive monthly decline and the lowest level since April 2017.

“The comments by U.S. President Donald Trump about introducing tariffs on certain products have not only alarmed the European Commission. Investors are also clearly reacting,” Sentix researcher Manfred Huebner said.

Trump said on Thursday the United States would apply duties of 25 percent on imported steel and 10 percent on aluminum to protect U.S. producers. The European Commission called the step a blatant intervention that amounted to protectionism and it raised the prospect of counter-measures.

Trump kept up the pressure over the weekend, threatening European automakers with an import tax if the EU retaliated in response to his plan for tariffs on metals.

Sentix’s index solely tracking Germany fell to 29.1 from 36.2 last month, while an expectations index for Germany dropped to -2.5 from 5.5, hitting the lowest level since February 2016.

“The German growth engine is clearly starting to stutter,” Huebner said, adding Trump’s protectionist rhetoric was clouding the mood among investors.

The VDA, which represents automakers Volkswagen VOWG_p.DE, BMW BMWG.DE and Daimler DAIGn.DE, pointed out that their auto production in the United States at 804,000 vehicles was greater than their exports from Germany and was growing.

German exports amounted to 494,000 cars last year - a fall of a quarter since 2013. Over the same period, German carmakers increased local staff levels in the U.S. market by nearly a fifth to 36,500 jobs.

More than half of the vehicles made in the United States by German carmakers are exported, the VDA added, supporting the U.S. foreign trade balance.

Trump’s threat to launch a trade war has encountered resistance from fellow Republicans, including Senator Lindsey Graham of South Carolina, where a BMW plant employs 9,000 workers.

The carmakers’ remarks were echoed by Chancellor Angela Merkel’s government spokesman who said Germany wanted to avoid a trade war with the United States because it believed such a conflict would be in nobody’s interest.

Spokesman Steffen Seibert said Europe would respond appropriately to any punitive tariffs the Trump administration imposes and Berlin would consult with France, the European Commission and other partners.

Additional reporting by Douglas Busvine, Christoph Steitz and Thomas Escritt; Writing by Michael Nienaber; Editing by Mark Potter