Why does the EU tax cars from the US at 10%, while the US taxes European cars only at 2.5%?

Alfonso Llanes, Master Degree in International Development

Answered just now

Trump wrote on Twitter: “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S.,” They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

A burning issue with Trump’s tweets and statements is that they cannot pass a lie detector test for apparently this President has a lot of trouble with the truth. The United States imposes a 2.5% tariff on cars assembled in Europe and a 25% tariff on European-built vans and pickup trucks. Europe imposes a 10-percent tariff on U.S.-built cars which makes it a 13.75% on the average for cars and trucks going across the Atlantic. However, the proposed North Atlantic Free Trade Agreement would eliminate those tariffs but the process is yet to be started with Trump favoring bi-lateral trade agreements so that he can bully the weaker partner into concessions. The European Union on the other hand, prefers entering trade agreements as a block for its bargaining power is better aligned with large economies such as China’s US, Japan and so on.

In a recent statement Trump said: “The European Union has been brutal to us,” at a Florida fundraiser. “They’ve banded together in order to beat the United States in trade.” In response to Trump harsh criticism European Commissioner in a speech Friday night at Harvard University, Margrethe Vestager said the EU will respond to the tariffs “to defend European industry, and the world trading system,” according to a copy of her remarks. She called the Trump action “one-sided protectionist measures, which hurt, not just jobs, but the whole system of rules that makes our global economy work.”

German automakers argue that Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States. BMW employs more than 9,000 workers in South Carolina and is one of the state’s largest employers making Trump’s statements sound hollow. Moreover, the United States accounts for about 15% of worldwide Mercedes-Benz and BMW brand sales, while it accounts for 5% of VW brand sales and 12% of Audi sales. In contrast, the United States had a $22.3 billion automotive vehicle and parts trade deficit with Germany in 2017 and a $7 billion deficit with the United Kingdom, according to U.S. government data. But Germany’s automotive trade association said “the United States would be shooting itself in the foot by imposing tariffs or other trade barriers.”

Trump’s threat comes amid mounting transatlantic tension on trade as European Commission President Jean-Claude Juncker told German television that “We will put tariffs on Harley-Davidson (motorcycles), on bourbon and on blue jeans - Levis.” Canada and Mexico also said they will retaliate for any tariffs on steel and aluminum.

“Germany's carmakers responded by pointing out that German and European carmakers are major investors in the U.S. In 2017, German automakers alone were invested in 265 plants across the country and employed approximately 110,000 American workers.” According to Germany's Association of the Automotive Industry, Germans produced 854,000 vehicles in the U.S. in 2016, a four-fold increase in about seven years. More than 60% of those were exported to foreign markets. There are, however, at least 10 major European car makers that sell in the U.S. but do not produce there — these reportedly include the U.K.'s Land Rover and Jaguar as well as Audi and Porsche. Sweden's Volvo manufactured 6% of its cars in the U.S. in 2016.”

President Obama’s past announcement of the proposed Transatlantic Trade and Investment Partnership (TTIP) is hugely important to the car industry and to car enthusiasts that Trump now is trying to undermine. The Partnership’s objectives include eliminating tariffs on imported cars, as well as finally implement parallel standards to meet U.S. and European automotive safety and environmental requirements. If adopted, the agreement could result in increased US manufacturing by European brands and American dealers stocking a broader product for consumers to choose from. Individual European countries don’t charge import duties, but the European Union charges a flat rate of 10 percent on imported automobiles. In simple terms, tariffs are taxes. They’re paid to governments by the businesses that import and export products are factored into the prices consumers pay. In contrast, if the proposed TTIP is in place, all tariffs on cars and about a billion other products that are exchanged across the Atlantic would almost definitely disappear. Whether ignorance, stupidity or both the Trump administration is exceeding disruption of sources and methods that the US has strongly articulated for over 50 years to improve trade and commerce among nations in general.