Germany’s largest auto makers back abolition of EU-US car import tariffs

  • Business
  • Thursday, 21 Jun 2018

German automakers Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States

BERLIN: Germany’s leading auto makers have thrown their support behind the abolition of all import tariffs for cars between the European Union and the U.S. in an effort to find a peaceful solution to the brewing trade war.

The U.S. ambassador to Germany, Richard Grenell, brought the proposal for a broader industry trade pact to the Trump administration on Wednesday, according to people familiar with the situation.

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want President Donald Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

German car makers’ efforts face significant hurdles. Berlin has no power to hammer out trade deals—a prerogative of the European Commission, the EU’s executive body in Brussels—and would have to persuade fellow EU member states, starting with France, to back a radical free-trade approach many have shown little interest in.

The car makers’ approach is unusual, but German officials said any approach could be worthwhile to try to sway a president whose actions have left his allies perplexed at best.

“Germany has the right approach to resolving this trade disagreement among friends,” said U.S. Commerce Secretary Wilbur Ross. “If the EU were to reduce its 10% tariff on U.S. cars and trucks, that would be a positive first step toward trade that was more fair and reciprocal.”

One catch is that the Europeans also want a 25% U.S. tax on imports of light trucks—pickup trucks, sport-utility vehicles, and big vans—scrapped. Abolishing this relic of the Johnson administration could alienate U.S. auto workers, a core constituency for Mr. Trump in the midterms this fall.

Mr. Ross didn’t comment on whether the U.S. would be willing to cut tariffs on trucks.

Government officials in Berlin are cautious about the car makers’ initiative. While they endorse the idea, they say the government already approached the Trump administration with similar proposals weeks ago without eliciting much interest. They also say no talks are currently taking place on trade between Europe and the U.S. as the EU finalizes its response to Mr. Trump’s steel and aluminum tariffs.

Mr. Grenell, a rare U.S. ambassador seen as having a direct line to the president, told The Wall Street Journal that hurting German car makers wouldn’t be in the interest of the U.S.

“It is important to stay focused on American jobs, and the German auto industry employs tens of thousands of U.S. workers,” Mr. Grenell said.

Daimler confirmed that a meeting with Mr. Grenell took place, but declined to comment. Volkswagen also declined to comment.

A spokesman for BMW said in the company is “convinced that free trade, with minimal or no barriers, benefits all concerned and is an important element in promoting national and international prosperity and well-being. Clearly this also applies to trans-Atlantic trade.”

A European Commission spokesman didn’t comment directly on the German car makers’ offer, but underlined it has a united stance against the aluminum and steel tariffs.

“We made the case for dialogue with the U.S. to address any bilateral trade grievances,” the commission said. “We also made clear that this could only happen once the EU was granted a permanent exemption on the tariffs on steel and aluminum products.”

Getting France on board may be almost as difficult as convincing Mr. Trump to play ball.

Unlike Germany, French car makers Renault SA and Peugeot SA don’t export cars to the U.S., and so any free trade deal would be of little value to them. In fact, a deal could open the French market to unwanted competition.

"We are absolutely in favor of reducing tariffs in certain areas like car imports, but we have to support a common EU position. Paris is still holding a hard line on this,” said a German official familiar with the negotiations.

A French official said Paris was unaware of the proposal, and it wasn’t discussed during a recent summit between French President Emmanuel Macron and German Chancellor Angela Merkel in Meseberg, Germany.

Mr. Trump’s repeated threats to raise tariffs on imported cars could put $54 billion in annual revenue from European passenger car exports to the U.S. at risk, according to data from the European statistics office. Germany’s auto association says German auto makers and suppliers export €29.4 billion ($34 billion) worth of goods to the U.S. each year, while Germany imports just €6.5 billion ($7.5 billion) worth of American goods.

For the U.S., that is a huge trade imbalance that Mr. Trump wants to eradicate. The Germans say that figure is skewed and the trend is already moving toward more investment in the U.S. German auto production in the U.S. has quadrupled since 2009. And the U.S. doesn’t export many cars to Germany because auto makers Ford Motor Co. and General Motors Corp. have instead built them in Europe.

Daimler and BMW each generated around 10% of their global unit sales in the first five months of the year through exports to the U.S., according to Wall Street Journal calculations.

“If these tariffs are imposed my BMW, Audi and Porsche dealerships will become warehouses and cease to exist. The math just doesn’t work,” says Steve Kalafer, a founding chairman of the New Jersey-based dealer network Flemington Car & Truck Country Family of Brands.

The Commerce Department is preparing a study to determine if tariffs could be imposed on national security grounds. Stormy-Annika Mildner, a foreign trade expert at the Federation of German Industries, said German industry groups would submit comment to Commerce this week to object to the notion that Germany poses a security threat.

She said German auto companies support thousands of jobs in the U.S., and that exports from German auto factories contribute positively to the U.S. trade balance, and German companies have been active in training American workers.

“Any deal has to be reciprocal,” Ms. Mildner said. “Europe lowering car tariffs on a unilateral basis would not be a clever thing to do.”

During the auto summit meeting, Mr. Grenell implored the German auto executives to “deliver the numbers” that prove Germany’s contribution to the U.S. economy.

“We have to keep talking to the U.S.,” said a German industry official who attended the meeting between Mr. Grenell and auto industry chiefs in Berlin on June 7. “Grenell said he wants to help us. Whether he really can is uncertain, but it’s a positive sign.” - WSJ

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