US: Economic impact of the looming tariffs on cars – Rabobank

Driven by animosity vis-à-vis German cars and a sense of non-reciprocity by the EU on lower car tariffs, US President Trump is expected in the next few weeks to decide on whether the US will impose trade tariffs on cars, points out the research team at Rabobank.

Key Quotes

“In order to make a fair comparison between the level of protectionism on both sides of the Atlantic, one should assess average applied tariff levels, rather than individual product groups, such as cars. The United States applies an average tariff rate of 2.9 percent while the EU applies an average 2.5 percent rate.”

“Contrary to what the president seems to think, we argue that the effects of tariffs on the US economy will be ambiguous at best. In the short-term it may protect the domestic car industry and employment, but in the longer term it is likely to confirm the relative decline of the US car industry in terms of productivity. Retaliation by the EU (and Japan) could harm the US economy directly by about 0,2% of GDP.”

“In the EU, Germany would be the hardest hit country. There, the direct effect could reach up to about 0.3% of GDP. On the EU as a whole the effect is more modest.”

“For the Netherlands, the impact will be very small: direct exposure to the US car market, even via other countries, is limited to about 3 billion USD in production.”

“The indirect consequences for the US (and EU) economy may be larger. The escalating tensions could lead to a full-blown trade war and, in the run-up, dent consumer and producer confidence.”

“A more intrinsic point is that the consequences are partly uncertain: as a response to previous tariff hikes we now see companies announcing to shift (part of) their operations to other countries.”