Jun 20, 2018 - Economy

Go deeper: Germany’s automakers have an olive branch for Trump

BMW headquarters

BMW's Munich headquarters. Photo: Sven Hoppe/picture alliance/Getty Images

All major German automakers, including BMW AG and Volkswagen AG, want the Trump administration to back off its threatened auto tariffs on the European Union, The Wall Street Journal reports, so they've come up with a big proposal: eliminate all automobile import tariffs between the U.S. and the EU.

Why it matters: It's a tactic that could play well to President Trump — and his favorite trade buzzword "reciprocal" — and Commerce Secretary Wilbur Ross called it the "right approach to resolving this trade disagreement among friends." But removing tariffs on this side of the Atlantic could alienate some key Trump supporters in Detroit who want him to protect the U.S. auto industry.

The proposal:

  • President Trump must rescind his threat of a 25% border tax on all European auto imports. In addition, the U.S. would also scrap its long-standing 25% import tariff on "light trucks," such as pickups, SUVs, and big vans.
  • The EU will erase the 10% tax on auto imports from the U.S. and its 2.5% duty on auto imports in the U.S.

The big picture: It makes sense that German automakers would attempt to find some sort of middle ground with the U.S. If the Trump administration follows through with its 25% tax on EU auto imports, it could disrupt the car industry and its global supply chains — and that would affect Germany far more than any other European nation.

  • Since Trump's tariff announcement, "Mercedes-Benz maker Daimler, Volkswagen, and BMW have together shed $20.2 billion in market value, with Volkswagen now valued at about $93.4 billion, Daimler at $77 billion, and BMW at $64.2 billion," Fortune's Lucinda Shen reports.
  • “Any deal has to be reciprocal,” Stormy-Annika Mildner, a foreign trade expert at the Federation of German Industries told WSJ. “Europe lowering car tariffs on a unilateral basis would not be a clever thing to do.”
  • “Import duties on cars would be a nightmare for the German auto industry and would lead to a massive sales impact," Thomas Altmann at Frankfurt asset manager QC Partners, told Reuters' Edward Taylor and Laurence Frost.

How we got here:

  • The EU will put a retaliatory 25% tax on $3.2 billion of U.S. items like bourbon, jeans and motorcycles beginning this Friday in response to U.S. tariffs on steel and aluminum.
  • Ross criticized the EU late last month for retaliating and not negotiating with the U.S.
  • That's forced German automakers to take the matter into their own hands — and they've managed to get their government on board, per the WSJ, though government officials remain skeptical that such a plan is viable.

The big problem: Though it's a novel idea, Germany will have a hard time convincing other European countries to go along with the plan as any trade decisions would have to come via the European Commission. That means that they'd have to get other countries, like France, that lack any real reason to bend to Trump on this issue on board.

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