Car wars: Counting the cost of Trump's tariffs - Al Jazeera

Car wars: Counting the cost of Trump's tariffs
How the world's biggest exporters try to steer away from a damaging trade war with the US.
07 Jul 2018 19:08 GMT Business & Economy, Donald Trump, United States, Europe, China

China is already calling it a full-blown trade war.

Billions of dollars worth of products are affected as US tariffs on selected Chinese products take effect this week. And China has said it's retaliating with its own tariffs on American goods.

But the big driver of an all-out global trade war could be cars.

US President Donald Trump has said cars are key to getting trade concessions. His administration is now considering a 25 percent tariff on foreign cars and car parts in the name of national security.

Europe currently charges a 10 percent tariff on US cars, while the US charges only 2.5 percent on European cars. Trump says that's unfair, but carmakers and dealers around the world point out that the US has a 25 percent tariff on light trucks and SUVs.

We are looking at much deeper implications than we have seen in previous trade wars.

Hosuk Lee-Makiyama, a director of the European Centre for International Political Economy

They are warning that Trump's tariffs would be bad for the car industry and bad for consumers.

Analysts call it a case of car crash economics.

So how will it affect consumers and producers? How important is the car industry? And what can be done to prevent a global trade war?

Hosuk Lee-Makiyama, a director of the European Centre for International Political Economy (ECIPE) and a leading author on trade diplomacy and the digital economy, believes the implications for consumers, as well as manufacturers, will be much larger than the ones of aluminium and steel tariffs.

He says "car wars" would not just be felt by consumers in the US, because "some of the SUVs that are made by European brands are made in the US and actually shipped to Europe. So, if you have a 20 percent price hike on imported cars, as well as car components, this will be felt as US-made cars are actually exported back to Europe. We are looking at much deeper implications than we have seen in previous trade wars."

"The big three American manufacturers have also strongly opposed this move - simply because most of the cars nowadays are produced relatively locally. In the case of the US, they are either made in the US or in the NAFTA region," Lee-Makiyama says. "Whereas, if you look at the supply chains, they are extending over the world. So, for example, you can buy a European car, let's say a BMW, and it will be made in the US but still, key components will be arriving from Germany, South Africa, and, sometimes, even China. So it is a very globalised industry."

"For the current administration in the US, the question is: Is the purpose of the new tariffs actually to open up the rest of the world by creating an artificial leverage, or is the purpose to try and force factories to move from Canada, Mexico into the US? ... Or rather protect the domestic production in the US - although US manufacturers don't even want that protection," he says.

Asked about implications on China, Lee-Makiyama explains that the main trade barrier in China is not just tariffs: "Their biggest trade barrier will be the fact that ... foreign manufacturers in China are actually forced into joint ventures, forced marriages with their Chinese competitors who are entitled to half of the profits and 100 percent of the know-how."