(Bloomberg) -- The European Union signaled it would reject any U.S. push to curb imports of EU cars and auto parts, highlighting the risk of greater transatlantic trade tensions.
EU trade chiefs meeting in Brussels dismissed an idea floated by President Donald Trump earlier this month of fixing quotas on European automotive exports to the U.S. He claimed such shipments pose a threat to national security.
On May 17, Trump put off a decision on auto tariffs for 180 days, but said that “domestic conditions of competition must be improved by reducing imports” and instructed U.S. Trade Representative Robert Lighthizer to address the matter in talks with the EU and Japan. Voluntarily restraining exports is illegal under World Trade Organization rules.
“That is something that we are 100% against,” Swedish Trade Minister Ann Linde told reporters on Monday in the Belgian capital before the gathering with her EU counterparts. France’s junior foreign-affairs minister, Jean-Baptiste Lemoyne, echoed the point by saying the 28-nation bloc is determined to respect WTO requirements.
Being played out in the shadow of a U.S.-China trade war that has unnerved investors worldwide, the transatlantic discord over tens of billions of dollars in European auto exports to the American market risks morphing into a new headwind for the global economy.
The issue could scuttle planned EU-U.S. negotiations on eliminating tariffs on industrial goods across the board and end a trade truce struck by both sides in July 2018. That in turn would increase the likelihood of U.S. duties on European cars and an EU tit-for-tat response.
Last year, Trump declared American imports of steel and aluminum a national-security threat and imposed levies of 25% and 10%, respectively, on shipments from around the world including the EU. That prompted the bloc to retaliate with a 25% tariff on 2.8 billion euros ($3.1 billion) of American goods including Harley-Davidson Inc (NYSE:HOG). motorcycles, Levi Strauss & Co (NYSE:LEVI). jeans and bourbon whiskey.
A 25% U.S. levy on foreign cars would add 10,000 euros to the sticker price of EU vehicles imported into the country, according to the European Commission, the bloc’s executive arm.
“We hope that the tariffs will not be put into practice at all,” Linde said. “That is a really, really tough situation for the Swedish car industry and the European car industry. So that would be a catastrophe.”
U.S. tariffs on European cars and auto parts would mark a significant escalation of transatlantic tensions because the value of EU automotive exports to the American market is about 10 times greater than that of the bloc’s steel and aluminum exports combined. As a result, European retaliatory duties would target a bigger amount of U.S. exports to Europe.
The EU plans to hit as much as 20 billion euros of U.S. goods with tariffs should Trump impose duties on European cars and auto parts, Jean-Luc Demarty, the commission’s outgoing director general for trade, said in late January.
Caterpillar Inc (NYSE:CAT). trucks, Xerox Corp (NYSE:XRX). machines and Samsonite International SA luggage are among U.S. goods that would face such EU retaliation, a senior European official said in late February on the condition of anonymity.