Europe carmakers surge on US-EU truce

The deal eases tensions for now stoked by Trump’s threat to impose new levies on car imports

By BLOOMBERG

WASHINGTON • European carmakers climbed after President Donald Trump backed off his threat to levy tariffs on cars imported to the US during a meeting with European Commission President Jean- Claude Juncker, averting for the time being an escalating trade war.

Shares of BMW AG, Volkswagen AG, Fiat Chrysler Automobiles NV and Daimler AG jumped yesterday following a pledge from the two leaders to “hold off on other tariffs” while they negotiate a deal to expand European imports of US liquefied natural gas (LNG) and soybeans and lower industrial levies. Germany’s VDA auto industry association called the meeting “a big step forward” and “good news for industry and consumers on both sides of the Atlantic”.

The two met on Wednesday at the White House with Trump warning that he would move forward with 25% tariffs on auto imports if the meeting with Juncker didn’t go well, prompting the European Union (EU) to respond that such a move would bring significant retaliatory measures on US goods. The breakthrough came after about three hours of talks, leading to their impromptu announcement in the Rose Garden.

“We had a big day, very big,” Trump said during a press conference with Juncker. “We are starting the negotiation right now, but we know where it is going.” Trump hailed “a new phase” of trade relations.

The deal eases tensions for now stoked by Trump’s threat to impose new levies on car imports. BMW climbed as much as 5.5% yesterday and was up 3.2% in Frankfurt as of 12:15pm. Volkswagen was 3.3% higher and Daimler up 2.6%. Fiat traded 4.4% higher in Milan.

Broadly Positive
Reaction in Germany, which would be one of the biggest losers in a trade war, was broadly positive. Economy Minister Peter Altmaier tweeted that the meeting’s outcome was a “breakthrough” that “can avoid trade war and save millions of jobs”. Ulrike Demmer, a deputy government spokeswoman, reaffirmed Germany’s backing for the Commission in future negotiations.

Trump could impose the 25% car tariffs on national security grounds once Commerce Secretary Wilbur Ross completes a required investigation, which could come anytime before a deadline by early next year. Auto tariffs at that level would add about €10,000 (RM47,600) to the sticker price of a European-built car sold in the US, according a European Commission assessment obtained by Bloomberg News last month. That would cut US imports of European cars and car parts in half, the commission forecast.

Trump on Wednesday said they would try to “resolve” steel and aluminium tariffs he imposed earlier this year and retaliatory duties the EU levied in response. The US and EU also will work together to reform the World Trade Organisation (WTO) and address unfair trading practices, they said in a joint statement.

Still, the lack of clarity about the long-term EU-US trading relationship stoked continued concerns in Germany, Europe’s largest economy.

“Tariffs were, are and will not be great, even if the US president claims as such in his tweets,” said Eric Schweitzer, president of the DIHK chambers of industry and commerce.

“The solutions set out go in the right direction but a healthy dose of scepticism remains.”

Marcel Fratzscher, head of the Berlin-based DIW economic institute, said the meeting had produced “a deescalation but not yet the all-clear” and warned of US possibly “manipulating” the WTO for its own goals and “further weakening multilateralism”.

Truce May Be Short-lived
The truce may prove to be short-lived if the two sides can’t resolve their differences over trade in vehicles and car parts. In May, Trump abandoned a framework for trade negotiations with Chi na within days of it being announced, before ratcheting up tariffs.

Trump says a 10% tax on imports of cars to the EU is too high compared to the 2.5% rate charged by the US, and he’s also been critical of the EU over its US$150 billion (RM609 billion) trade surplus with the US.

Still, the deal announced on Wednesday with the EU is an encouraging sign that America’s trade partners may be able to placate the Trump administration with offers to buy more US goods, averting a trade war that the International Monetary Fund has warned may undermine the strongest global upswing in years.

“Now it’s about putting meat on the bones of the agreement and quickly beginning negotiations,” said Bernhard Mattes, the VDA German auto association president.

Republican lawmakers who’ve grown worried about Trump’s trade strategy expressed cautious optimism.

“It’s going to help defuse some of the concern out there, not only in farm country but in our economy generally,” said Senator Rob Portman, an Ohio Republican. “It’s a first step.

We’ve still got to work out the details. But it’s been hard these last few weeks to see any light at the end of the tunnel,” with no signs of progress with the EU, Mexico, Canada or China.