A hike in tariffs on EU’s automotive exports to the U.S. will not only impact the U.S. GDP by $13-$14 billion and bring no improvements to its current account balance it will also cost the United States 120,000 jobs. Slapping tariffs on cars and car parts from the EU do not make any economic sense for the U.S.
In a 10-page letter to the United States, the European Union has made it lucidly clear that if Washington was to impose tariffs on cars parts and automobile exports from the EU it would significantly harm the U.S. automotive industry and in most probability lead to counter-measures by its trading partners and impact U.S. exports worth $294 billion.
The European Union has made it very clear that slapping tariffs on cars and car parts do not make any economic sense.
On May 23, under instructions from U.S. President Donald Trump, the U.S. Commerce Department launched its investigation into the EU’s trade surplus with the U.S. and for having higher import duties on cars. The EU has a 10 percent levy, compared to 2.5 percent for cars entering the United States.
Last week, Trump said the government was completing its study. He had earlier threatened to impose a 20% tariff on all EU-assembled cars.
As of 2016-2017, the EU had exported cars worth $43.6 billion (37.4 billion euros) to the United States. The EU has said, for some automobile categories, such as trucks, U.S. import duties are higher than their EU counterpart.
In its letter, the EU has said, companies from the bloc produce close to 2.9 million cars in the U.S. and support 120,000 jobs. In recent years imports had not seen a significant rise and had grown largely alongside overall expansion of the U.S. car market, with “increased demand that could not be met by domestic production”.
It further stated, U.S. imposed tariffs are likely to undermine U.S. auto production since it would result in higher manufacturing costs for U.S. automakers.
As per the EU’s calculations, if the U.S. was to impose 25% tariff, its initial result would be a negative impact of $13-14 billion on U.S. gross domestic product (GDP) with no improvement to its current account balance.
Furthermore, if one were to assume there would be further counter-measures, along the lines taken in response to existing U.S. import tariffs on steel and aluminum, up to $294 billion of U.S. exports are likely to be affected.
In its letter, the EU said, a link between the automotive industry with that of U.S. national security was “weak” since military vehicles, including the Humvee, were made by different producers.