June 08, 2018
German car lobby in full panic mode - wants EU to cut car tariffs unilaterally
We have been predicting for some time that the truce within the EU's on its position towards Donald Trump is unlikely to survive the real world of lobbying. This morning FAZ has the story that the German car industry wants the EU to cut the import tariffs on US cars unilaterally, in order to appease Trump. The first thing that struck us about the story is the apparent ignorance about WTO trade rules. You can't just cut the tariffs for US cars. You are not allowed to discriminate. The EU now has carefully crafted trade agreements with South Korea and Japan, where the lifting of car tariffs has been agreed to be gradual. Do we really think that Emmanuel Macron and a Lega/Five Star administration are going to say yes to the German car lobby?
We also doubt that a unilateral cut in the tariffs would work. The euro's is undervalued against the dollar as a result of the ECB's policies. The US is not going to export many more cars to the EU as a result of such a tariff shift.
And the proposal misreads the thinking of Trump. He does not use the threat of tariffs as a tool to reduce his trading partners' tariffs. That would be a hard-nosed pro-free-trade strategy. Trump wants the tariffs. There may be an economic cost, as trade economists keep pointing out. But for so long as the US economy is performing well, the political risks to Trump are very small. Protectionism is not the result of a failure to understand trade economics, or some irrational act. It is a calculation that the symbolic act of slapping trade tariffs on certain foreign goods and the resulting fall in their US sales will bring domestic political benefits. Can we really be sure that Trump is miscalculating?
The EU currently levies a 10% tariff on car imports, compared to a 2.5% tariff levied by the US. The German car lobby wants to equalise the tariffs. They argue that millions of German jobs depend on the car industry, which is why the EU must act.
FAZ is making an interesting additional observation. The reason why the EU is unlikely to agree a unilateral cut in import tariffs is the fear of a flood of imports from China, India and Brasil. Under the EU-Japan trade agreement, the EU's import tariff on cars will be cut from 10% to zero over a period of seven years. What the Germans are asking for is an immediate and unilateral cut.