President Donald Trump meets European Commission President Jean-Claude Juncker on Wednesday to discuss trade, including tariffs on autos, the sector that could have the most economic impact if it becomes a bigger part of the trade wars.
But it’s not clear whether Europe will be able to make an offer that will satisfy Trump, who has asked the Commerce Department to study tariffs of 20 to 25 percent on auto imports on national security grounds.
“The meeting with Juncker from the EU is about whether they’ll be able to move on a deal for a better agreement on autos,” said Michael Arone, chief investment strategist at State Street Global Advisors. “I just think at this point, it’s a bit too early to tell. I don’t think there will be a clear resolution [Wednesday].”
“I’m of the mind that Trump continues to use tariffs as a means to gain leverage in trade discussions,” said Arone. He said if there is no real outcome, the market will not react, but it could move either way if there is a seeming breakdown or a declaration of success.
Juncker reportedly consulted with the heads of Germany, France, the Netherlands and Austria before heading to Washington.
Analysts say the Trump administration would like to show some progress on trade issues, since talks with China have stalled. White House top economic advisor Larry Kudlow said last week that Juncker was coming to Washington with a significant offer on trade.
“Our sense is that Juncker is coming to the U.S. to kick the tires on what is possible. But EU divisions between Germany and France on what should be offered as well as global trade rules make getting a deal difficult,” wrote Daniel Clifton, head of policy research at Strategas Research. “We don’t believe there is a real national security case for imposing these tariffs and there is very little support. But the President is vowing action if no deal can be reached and this is worth watching, given how large the tariffs are.”
Economists have said auto tariffs would have the biggest impact on the world economy because of the interconnected nature of the global supply chain. Tariffs would also make their way to consumers.
“We do have a pretty integrated global supply chain, and I think you’re starting to see more and more complaints among manufacturers,” said Stephen Stanley, chief economist at Amherst Pierpont. Europe has already been slapped with U.S. tariffs on steel and aluminum.
“In the PMI for Europe, they’re seeing increasing parts and supply costs, and that’s ultimately going to go into prices,” said Stanley. “For the global economy, it would definitely be a step backward, and we’d end up in this vicious cycle of tariffs and retaliation and lots of rounds of that, but it’s hard to know exactly where this is going to end in a couple of years.”
An auto deal with Europe would be a positive, since it could also include reducing existing European tariffs of 10 percent on U.S. cars — a win for Trump. That compares with a U.S. tariff of 2.5 percent on autos, but the U.S. has a special tariff on pickup trucks of 25 percent.
Consumers would feel the brunt of auto tariffs, and if the U.S. applies them to all countries equally with no exceptions and to auto parts, the prices for some of the best-selling cars could go up anywhere from $1,400 to $7,000, according to a recent study by the Peterson Institute for International Economics. Even American-made U.S. car brands would cost more if auto parts are tariffed because they contain such a high percentage of foreign parts.
Cowen Washington strategist Chris Krueger said in a note that if the Trump administration moves forward with all the tariffs it has proposed, there would be a total $1 trillion in goods with a tariff or quotas by September, including $360 billion on autos and auto parts. That also includes existing tariffs on Chinese goods and Chinese tariffs on U.S. goods, plus an additional $200 billion Trump threatened on China and Chinese retaliation.
“We do not know if tariffs are the actual end game — but they certainly could be where this all ends,” Krueger wrote, suggesting that the tariffs could actually be a more permanent type of border tax.
According to Clifton, existing tariffs are just a tiny portion compared with GDP, but he developed a chart that shows that if auto tariffs are implemented, they would be a bigger part of the economy than any other group of tariffs going back to 1929.
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