EU Trade Commissioner gives ground: We're willing to drop auto tariffs to zero (if the US will do the same)

President Trump’s hard line on tariffs has won a significant concession from the European Union, at least the promise of one. Trump has been warning all summer that he could add a tariff on automobile imports which would have a significant impact on automakers in Europe (as well as Japan and Mexico). Today the European Union Trade Commissioner Cecilia Malmstrom said the EU was willing to drop all of its existing tariffs on cars and other goods to zero if the U.S. would do the same in return. From the NY Times:

President Trump’s threat to impose auto tariffs on imported cars has hit America’s trading partners in a sensitive spot, sending foreign leaders from Mexico to Japan racing to the negotiating table and, on Thursday, encouraging a significant concession by Europe…

Europe is willing to reduce “car tariffs to zero, all tariffs to zero, if the U.S. does the same,” Cecilia Malmstrom, the European commissioner for trade, told members of the European Parliament on Thursday. “We would do it, if they do it. That remains to be seen.”

Europe’s change in position is the latest indication that Mr. Trump’s threat to impose 25 percent levies on foreign-made Toyotas, Mercedeses and BMWs is forcing trading partners to give ground. Europe had previously expressed a willingness to eliminate tariffs on industrial goods, but excluded cars, and said any deal had to be part of a broad free-trade agreement…

Mexico, Canada and Europe initially insisted that they would not negotiate about trade “with a gun to the head.” But existing tariffs on steel and aluminum, and the specter of tariffs on automobiles, helped change their minds.

“The European Union’s original position was that they would not negotiate with the United States about anything to do with trade policy until the U.S. removed those tariffs,” said Joanna Konings, a senior economist at the Dutch bank ING who specializes in trade.

There are quite a few parts to this. The EU currently imposes a flat tariff of 10% on imported autos of all kinds. The US imposes a 2.5% tariff on autos but a 25% tariff on light trucks and pickups which make up a significant part of annual sales in the U.S. But there is another class of vehicles on which the EU is still saying it will not deal at all. From the Wall Street Journal:

U.S. Trade Representative Robert Lighthizer said that talks on slashing vehicle tariffs should also bring in agriculture—a sector that the EU has deemed not open for negotiation.

“When you go to zero,” Mr. Lighthizer told the Senate Finance Committee on July 26, “it has to have agriculture as part of it.”

[European Commission President Jean-Claude] Juncker had told Mr. Trump the day earlier that if the U.S. wanted to discuss tariffs on agricultural products, no deal would be possible.

There are no official negotiations taking place right now, just talks about negotiations. So while this isn’t an actual concession, at least at the moment, it’s definitely a sign that Trump’s tough approach is causing some reassessment by our trading partners of what is or is not on the table.

According to this Fox Business report, the White House is not celebrating this as a win but as one step in a broader move to put other tariffs, including agriculture and medical devices on the table as well. It’s too early to say if this is going to happen but it seems clear that Trump’s approach is to pocket this concession and press for more.

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