At Least One European Group Agrees With Trump Trade Ideas

Since President Trump launched his campaign to level the playing field in international trade, there has been a tit for tat between world leaders and the key players in the trade war. The U.S. President hasn’t found much support from foreign leaders—political or business. But he has had one prominent European group announce that they agree with him.

German automakers Daimler, BMW, and Volkswagen have proposed an end to all import tariffs on cars between the EU and the U.S. The companies have been meeting with the U.S. ambassador to Germany, Richard Grenell, over the past few weeks. All three of the companies have plants in the U.S. and have an obvious interest in an agreement being reached.

Of course, these three companies don’t have the authority to make changes to the EU’s trade policies, but they certainly have a strong influence. They do have the support of the German government as well as Ambassador Grenell. Unfortunately, there are significant hurdles from the other countries in the EU.

The most notable opposition will likely come from France as its most prominent automakers, Renault and Peugeot, don’t export their cars to the U.S. and therefore wouldn’t be impacted by the new U.S. tariff. They would potentially suffer from an unwanted increase in competition should the EU eliminate or lower its tariffs on U.S. imports though. So French automakers wouldn’t gain anything, but potentially lose a great deal.

At present the EU imposes a 10% tariff on all U.S. auto imports. The U.S. imposes a 2.5% tariff on cars and a 25% tariff on light trucks, SUVs, and large vans. Obviously for the proposal to work there has to be give and take from both sides and there is some concern whether President Trump would be willing to drop the 25% tariff on trucks and SUVs, at least completely.

The Trump administration has faced harsh criticism over this trade war. I for one have contended that the subject needed to be addressed and praised the President for taking on the task. But I have also been critical of the President’s approach. Threatening and bullying our allies doesn’t seem like a sound business strategy to me. However, if the proposal from the German automakers leads to some changes that make the trade practices more equitable, I will be the first one to acknowledge that the President accomplished what he set out to accomplish.

There seem to be discussions happening on all fronts—the EU, China, Mexico and Canada. It also seems like the two sides are from reaching a compromise on all four fronts. The EU may be the first one where progress is made, but Canada, China, and Mexico are our three largest trade partners.

I am also a little concerned that the negotiating tactics that have brought German automakers to the table might not work with the others, especially China. The cultural differences may make it tougher for China to negotiate while being threatened. That is not the way Eastern cultures typically do business. In fact, it is quite the opposite of how they prefer to do business. Both the Chinese and Japanese are typically very respectful to their negotiation opponent and politely disagree or decline an offer if they see fit.

You get the feeling that President Trump doesn’t really want to impose the tariffs he has proposed. If he really wanted to impose them, he would have done so immediately and not wait for months. The proposed tariffs were a tactic to get the other side to take the matter seriously. I would say he has been successful in that regard. Now let’s hope that there are some deals worked out before things get out of hand and the world economy goes in to a recession as a result of an all-out trade war.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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