After last week’s announcement from the leader of the free world that the US would impose hefty tariffs on steel and aluminium, Donald Trump now has threatened the European Union with a tax on imported cars, as he amplified his increasing aggressive rhetoric around trade tariffs. The threat comes after Jean-Claude Juncker, the European Commission president, said the EU would not bury its head in the sand over the introduction of tariffs, and would slap taxes in stereotypical American products such as Levi jeans, bourbon whiskey and Harley Davidsons.
As is the norm these days, Trump used social media to threaten the European car industry, tweeting, ‘If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!’. He added in a second tweet, ‘Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!’
Figures show that last year over GBP170bn worth of cars were produced in the EU for export, with the US the final destination for 25% of them. And of those cars exported to America, approximately 50% were from German car makers.
Not surprisingly the threat of tariffs on imported European cars has brought a instant response from car makers, who point out that they employ, both directly and indirectly, hundreds of thousands of American workers, due to the fact that the bestselling European cars sold in the US are also manufactured there.
Shortly after the threats Juncker told the German media, ‘None of this is reasonable, but reason is a sentiment that is very unevenly distributed in this world’.
Although global growth is currently very strong, arguably well above a long term sustainable rate, a greater use of trade tariffs, which looks increasingly likely, risks a reversal of the growth dividend that the world experienced as trade with emerging economies expanded rapidly. Added to the fact the developed world is ageing rapidly, the future looks as bleak as it has done for many a decade, in spite of the current optimism around the globe. Whilst trade tariffs may cause a rise in inflation, it should be viewed as more as a tax on growth than anything else.