President Donald Trump singled-out the euro as an undervalued currency Tuesday in what could be a sign that Europe, and its $1.2 trillion auto sector, is next on his tariff hit-list.
Trump said the euro, as well as other global currencies, are "devalued" against the U.S. dollar, which itself is trading a two-and-a-half month low on foreign exchange markets. Speaking with CNBC's Squawk Box program yesterday, Trump said the European Union had been a "very, very difficult" trade negotiator and suggested weaker global currencies put the U.S. at a disadvantage in world trade, but that he could redress this imbalance with tariffs.
"Without tariffs, we would be absolutely, outside of something that I won't even mention, we would be absolutely in a competitive disadvantage, the likes of which you've never seen, Trump said. "Now, people haven't used tariffs, but tariffs are a beautiful thing when you're the piggy bank, when you have all the money. Everyone's trying to get our money, China -- and the China deal's going to work out you know why. Because of tariffs."
TheStreet's founder, Jim Cramer, thinks Trump's use of tariffs to extract concessions on non-trade issues, such as with Mexico and immigration, raises huge risks for European carmakers, which could find themselves on the business end of fresh U.S. levies if the President were to use tariffs to compel countries such as Germany and France to increase their NATO spending commitments.
Germany reaffirmed a commitment to increase its military spending to 2% of its GDP by 2024 following a series of tense meetings with Trump at last year's NATO summit, but indicated last month that its 2019 outlay would only rise to around 1.35% and that it would only spend 1.5% of its GDP by the 2024 deadline.
"The Prime Minister and I agree that our NATO allies must increase their defense spending (and) we've both been working very hard to that end," Trump told during a joint press conference with outgoing UK leader Theresa May last week in London. "We expect a growing number of nations to meet the minimum 2% of GDP requirement. To address today's challenges, all members of the alliance must fulfill their obligations."
"They have no choice," he added.
Trump has repeatedly threatened to apply tariffs on European-made cars sold in the United States, but postponed a decision to use section 232 of the Trade Expansion Act as a pretext to apply the 20% levy until later in the fall.
European carmakers had been under pressure from comments made during Trump's State of the Union Speech to Congress earlier this year, when he urged lawmakers to pass the United States Reciprocal Trade Act, "so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the exact same product that they sell to us."
The EU exported around 1.155 million cars to the U.S. market last year, according to the European Automobile Manufacturing Association, with total value of just over €37.3 billion ($41.8 billion). The U.S, in contrast, moved only 267,653 cars in the other direction, a value of just €5.5 billion but still nearly 20% of the sector's entire international export base.
Cars imported into the United States from countries that don't have existing pacts with Washington are subject to a 12.5% levy, while pickup trucks are subject to a 25% tariff.
That said, some of the largest production facilities of Europe's biggest carmarkers are located in the United States, with plants in Vance, Al. and Spartanburg, S.C. and Chattanooga, Tn., that assemble around a third of the German cars sold domestically.