On November 14, US President Donald J. Trump again succeeded in defying everyone’s expectations when he faced a legally imposed 6-month deadline under Section 232 of the Trade Expansion Act of 1962 to decide whether to impose tariffs on imports of cars and car parts (including from the EU) on the basis of national security concerns. While the whole world was anxiously watching the headlines, preparing for the start of a new trade war, the deadline passed without any decision being taken.
Experts now believe that Trump will no longer be able to legally impose tariffs on cars and car parts based on Section 232. Although uncertainty remains over the next steps, the Trump administration is now reportedly considering the possibility of opening a new investigation that would cover a much broader range of imports from third countries other than cars and car parts.
The “Real Deal”
The real question now is: have national security concerns ever been the real motivation behind the US car tariff threat? One could reasonably doubt this.
In fact, a recent statement by Commerce Secretary Wilbur Ross can help shed light on the real goal the US is pursuing: “Our hope is that the negotiations we’ve been having with individual companies about their capital investment plans will bear enough fruit that it may not be necessary to put the 232 [tariffs] fully into effect, may not even be necessary to put it partly in effect.”
Ross’ statement confirms that active negotiations are ongoing and they are happening at the individual car manufacturer level rather than at the government level. Moreover, negotiations are focusing on EU car companies’ “capital investment plans”. But what does that mean?
When the threat of additional US tariffs on EU cars and car part imports first surfaced, the reaction in Europe was that European manufacturers already build more than 3 million cars in the US. But let’s face it, in 5 to 10 years, the plants that manufacture f-cars (fossil fuel-propelled cars) will all go the way of the dinosaurs. The future of cars is electric and the leaders in e-car technology are not American car makers, but Japanese and German car manufacturers.
Hence, the real objective of the United States is to make sure that future-proof German technology to build electric cars is developed (also) in the US and deployed (also) on American soil. Japan and South Korea have already signed separate commercial agreements with the American that encompasses the automotive sector. Now it’s the turn of German car manufacturers. Against this backdrop, it is worth noting that in January 2019 Volkswagen AG pledged to invest $800 million and add 1,000 jobs to build electric vehicles in Chattanooga, Tennessee.
At ExportUSA, we have always been convinced that the US would never go as far as to actually impose additional tariffs on car and car parts imports. The fact that Trump let the November 14 deadline pass, likely depriving himself of a legal basis to impose tariffs based on national security concerns, clearly supports our view. The direct US engagement with German car makers makes us even more optimistic. When international trade is concerned, pragmatism and economic convenience combined seem to have a way to get things unstuck better than politics.
The way forward – adapting to Trump’s negotiating style
There is more than just electric cars on the EU-US negotiating table at the moment. Following the agreement between Trump and outgoing European Commission President Jean-Claude Juncker on July 25, 2018, the EU has put forward two mandates for a limited trade agreement with the US. One mandate provides for the mutual elimination of tariffs on industrial goods (including cars), while the other provides for the elimination of some non-tariff barriers, and instead focusing on the conformity assessment of goods.
Unfortunately, the mandates were a non-starter for the US Congress, which is demanding that agriculture be included in the negotiations as well. As a result of the Congress’ stance, the parties have been stuck in a prolonged stalemate with no progress anywhere in sight.
The American decision to hold off on the car tariffs should be taken by the EU as what it is: not only a signal that negotiations to bring capital investments in e-cars on US soil are bearing fruit, but also as a sign that the Americans are willing to negotiate a limited trade agreement with the EU in good faith.
The European Commission should go the extra mile and put on the table one additional negotiating mandate providing for the elimination of tariffs on some non-sensitive agricultural goods. This solution has the potential to make a trade deal acceptable for the US Congress while respecting all the so-called EU “red lines” in the agri-food policy space (e.g. chlorinated chicken, hormone-treated beef) and avoid painful concessions in key EU agricultural sectors (e.g. beef, sugar, rice).
It should be abundantly clear by now that the Trump administration has adopted a negotiating style that borrows heavily from business practices rather than from the rulebook of international diplomacy. Faced with the issue of a lack of investment in electric cars in the US, the Trump White House has decided to hold direct commercial discussions with EU car makers rather than engaging in technical negotiations with EU trade officials.
The EU should acknowledge this and adapt accordingly. The potential US launch of a new broader investigation and the threat of new tariffs should therefore not be regarded as a brutal arm-twisting exercise which goes against the spirit of contemporary international trade diplomacy. On the contrary, this is simple commercial tactics aimed at maintaining the necessary leverage to bring the EU at the negotiating table and gain concessions for American farmers as well.
Large multinational car companies would not be the sole beneficiaries of improved transatlantic trade relations. European SMEs in all sectors of the economy have indeed a lot to gain from a bilateral trade agreement, even if limited in scope.
It is, therefore, for the benefit of SMEs in particular that we call on the European Commission to take an additional small step forward and break the current stalemate with the US by opening a new era in transatlantic trade relations.