Trump’s comment that he wanted to banish the sight of Mercedes cars in New York followed his administration opening a trade investigation into vehicle imports, which he tweeted on Friday would result in 20% tariff on cars unless action was taken by the EU. “Build them here,” he told carmakers, even though many do boast large or expanding plants in the US.
A 20% tariff, up from 2.5%, on the cost of a foreign car could lower eurozone GDP by 0.3% at least, says Bank of America Merrill Lynch. It would take a 7.5% appreciation in the value of the dollar, and a concomitant rise in the purchasing power of prospective American customers, to offset such an increase.
“If the US raised tariffs to European cars to 25% and 10% on all other products, 0.7% of euro area GDP could be at risk,” the bank said last week. To protect eurozone exporters from any losses, the dollar would need to rise to parity with the euro (something that Trump might perhaps even like, as a symbol of macho success).
So tariffs such as those in prospect would hurt the car industry – and none more so than the UK’s: Jaguar Land Rover is a huge exporter to the States.