Responding to pressure by President Donald Trump at the G7 Summit meeting earlier this month, German car manufacturers have thrown their support behind the president’s proposal to eliminate tariffs on car imports from the European Union to the U.S. and vice versa.
Currently, the EU imposes a 10 percent tariff on car imports from the U.S. and America has a 2.5 percent tariff on its imports from the EU.
Over a million EU cars are imported annually into the United States — about one-sixth of Europe’s total car production.
The trade deficit between the EU and the U.S. is enormous.
We sold them only $283 billion in goods and services in 2017 but bought $434 billion from their member nations.
The trade deficit of $151 billion in 2017 was second only to our deficit with China in size. Cars are the leading component of this shortfall.
Other European Union members are less forthcoming on the issue.
The European Commission President Jean-Claude Juncker has proposed the elimination of all trade barriers between Europe and the U.S. but has specifically excluded autos, by far the largest component, from the free trade offer.
Germans point out that their American factories produce $864 billion in cars, 60 percent of which are exported from the U.S. to other countries. This direct foreign investment would not be impacted in the trade negotiations.
As talk of a trade war between the EU and the U.S. heats up, the willingness of Europe to negotiate a zero option on tariffs could be very significant.
Since the EU was originally a customs union featuring, as its prime impetus, the removal of all tariffs on intra-Europe trade, a free trade deal with the U.S. would, in effect, extend the union to the United States.
Since the initial customs union — called the Common Market in the ’60s and ’70s — evolved into the current European Union, there has been a political integration that would remain even as the economic barriers with the U.S. are lowered.
While the U.S.-EU negotiations are proceeding, Britain, withdrawing from the EU as a result of the Brexit referendum, is also seeking a free trade deal with the EU.
Trump’s triumph in getting the EU to propose a free trade deal — although not in autos — and in getting the German car makers to propose an end to car tariffs is a major victory.
Of course, you won’t read about it in the mainstream media (except the Wall Street Journal), but Trump deserves a great deal of credit for it.
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