May 10, 2019 / 2:16 PM / 11 days ago

After Trump hikes China tariffs, Europe girds for battle over cars

BRUSSELS (Reuters) - After raising tariffs on $200 billion of Chinese imports on Friday, U.S. 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.

FILE PHOTO: Volkswagen export cars are seen in the port of Emden, beside the VW plant, Germany March 9, 2018. REUTERS/Fabian Bimmer

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 U.S. decision affecting some 47 billion euros ($53 billion) worth of car and auto 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 auto part imports pose a risk to national security. The president’s 90-day deliberation period is due to end on May 18.

Automakers 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 realize that the threat of auto 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 United States, notably on a deal to cut duties on industrial goods.

If Washington imposes new trade-restrictive measures, those talks would be suspended and the European Commission would impose duties on 20 billion euros of U.S. goods.

The decision to hold talks even at this point has not been easy, with Germany — responsible for 57 percent of EU auto exports to the United States — in favor of a quick start and France against.

Johan Bjerkem, an analyst at Brussels-based European Policy Center, thinks a Trump decision to impose car tariffs would end that division.

“European countries may be more divided now, because some of them feel the pressure more than other. But once Trump goes ahead then he doesn’t have the same leverage,” he said.

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 U.S. demand to include farm products.

Meanwhile, EU steel and aluminum makers remain subject to punitive U.S. import tariffs. The measures, also based on national security, prompted EU counter-measures, with increased tariffs on motorbikes, whisky and other U.S. product.

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 has long said protectionism is the single biggest threat to the euro zone economy, with fading confidence outweighing any boost in exports to countries other than the United States.

Harley Davidson motorcycles are displayed for sale at a showroom in London, Britain, June 22 2018. REUTERS/Henry Nicholls

Europe has also engaged in talks with the United States 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 now,” he said.

Reporting by Philip Blenkinsop; Additional reporting by Francesco Canepa in Frankfurt; Editing by Peter Graff

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