EU considers eliminating car tariffs to avoid trade war

The European Union may offer to negotiate a plurilateral trade deal that would eliminate most tariffs on autos to persuade President Donald Trump not to start a damaging trade war. The plan, which has strong backing from Berlin, could be presented by European Commission President Jean-Claude Juncker when he visits the White House later this month, European officials said.The potential offer would be an olive branch to Trump, who is obsessed with car imports, particularly from Europe. On Sunday, he called the EU “possibly as bad as China,” and said: “They send a Mercedes in, we can’t send our cars in.”

A Commission official said the deal would have to cover about 90 percent of global car exports to meet World Trade Organization standards, meaning at least the EU, U.S., Japan, Canada, South Korea, Mexico and potentially also China would need to participate. Any pact that covers less than 100 percent of global car exports raises the possibility of some free rider countries benefiting from the agreement without cutting their own car duties.

A WTO official said they had not yet been briefed on plans for a plurilateral car deal, but said the concept would be possible. Still unclear is whether any such agreement would cover auto parts and non-tariff barriers that stymie auto imports.

Trump often complains about the EU’s 10 percent tariff on car imports, compared to the 2.5 percent duty imposed by the United States. In May, Commerce Secretary Wilbur Ross launched a Section 232 investigation that could lead to a 20 or 25 percent U.S. tariff on autos in the name of national security, although critics accuse the administration of abusing that authority.

The tariffs U.S. auto exporters face vary by country. Auto trade between the United States, Canada and Mexico is already duty-free as long as the vehicles meet rules-of-origin requirements. China announced in May it would cut its 25 percent duty on cars to 15 percent, effective July 1. But Beijing has also targeted U.S. autos for a 25 percent retaliatory duty in response to Trump’s plan to raise duties on Chinese goods.

South Korea has already phased out its 8 percent tariff on U.S. cars as part of the KORUS free trade agreement approved by Congress in 2011. It recently also agreed to address an important non-tariff barrier by boosting the number of U.S. cars that don’t have to meet the country’s more rigorous safety standards to 50,000, up from 25,000 in the original KORUS pact.

Japan has no tariffs on car imports. As part of the Trans-Pacific Partnership, it agreed to address a number of non-tariff barriers identified by United States. But Trump walked away from the TPP pact and those commitments. Both the United States and the EU were expected to eliminate auto duties as part of the proposed Transatlantic Trade and Investment Partnership, but there has been no work on that initiative since Trump took office.