US tariffs would cut EU automotive output by 3.6% to 2021 - analyst

Author: Tom Brown

2019/05/30

LONDON (ICIS)—The imposition of 25% tariffs on EU automotive exports to the US would substantially reduce output in the sector, with Hungary, Sweden and Germany particularly vulnerable, according to Oxford Economics on Thursday.

The threat of punitive new tariffs on cars and car parts to the US from the EU and Japan has been mooted as US President Donald Trump branded the imports as a “national security threat”.

The US has delayed the imposition of the new measures for six months from mid-May as officials push for concessions on the scale of automotive exports to the country, but the damage would be perceptible in both directions if they come into effect, analysts at Oxford Economics said.

EU automotive output would fall around 3.6% compared to the think tank’s baseline forecast by 2021, while US production would likely fall 1.2% below expectations.

The impact would be less substantial but still noticeable in country GDP terms, with EU and US growth likely to be 0.2 and 0.1 percentage points lower to 2021 than if the auto tariffs were not applied.

The US is the largest global market for European original equipment manufacturers (OEMs). Producers sold 1.2m EU-origin vehicles to the US in 2018, representing a quarter of total car imports to the country and 29% of EU export value.

US tariffs would result in higher production costs for EU and US manufacturers, as well as lower US auto sales and higher consumer prices in the country, Oxford said, and comes at a bearish period for EU automotive production as a result of tighter emissions standards and tepid growth.

While German and Hungary stand to be hardest-hit by the imposition of tariffs, the interconnectedness of EU markets means that even countries with relatively limited exposure to the US auto sector such as the Czech Republic are likely to feel the chill.

Local trade group the European Automotive Manufacturers Association (ACEA), which claims the measures would be a violation of World Trade Organisation (WTO) protocols, claimed that European OEMs build more than 3m vehicles in the US, many of which are then exported to third countries.

If the 25% tariffs come to pass and become an entrenched aspect of global trade, EU manufacturers could shift a larger proportion of supply chains to the US to reduce their reliance on imports for completed vehicles in the country, or relocate whole production facilities.

Such moves take time and money, and limited export markets for facilities in the country in light of the US’ trade war with China would likely limit the attractiveness of relocation, Oxford said.

“The macroeconomic impact of 25% US tariffs on auto imports from the EU, along with EU retaliation should be manageable, cutting EU and US GDP by 0.2% and 0.1% respectively by 2021,” said Oxford senior economis Stephen Foreman.

“But the disruption from the auto tariffs on the already-weak automotive sector could be far more severe.”

Pictured: An Audi production plant in Bavaria, Germany. Source: Stephan Goerlich/imageBROKER/REX/Shutterstock