European automaker shares weakened Thursday after a key European lawmaker warned that the White House could apply fresh tariffs on exports to the United States before the end of the year.
European Union Budget Commissioner Gunther Oettinger, a German politician who once oversaw the auto industry in the state of Baden-Württemberg said he expected the new levies "before Christmas", according to a report by Germany's Wirtschaftwoche, a business and economics focused newspaper. The Commission itself attempted to clarify the comments, saying Oettinger was "concerned" the tariffs "could" come, and wasn't insisting anything had been decided in Washington.
New tariffs would mark a stark reversal to a July agreement between President Donald Trump and European Commission President Jean-Claude Juncker to freeze auto levies while they negotiate terms of the "breakthrough" trade arrangement. Juncker praised Trump for agreeing to hold off on new tariffs for European-made cars sold in the United States, calling it a "major concession" from the White House.
Volkswagen AG (VLKAY) shares reversed earlier gains following news of Ottinger's comments, and were marked 0.7% lower on the Deutsche Boerse in Frankfurt at €148.80 each by mid-day. Domestic rival BMW AG (BMWYY) was marked 1.26% lower at €72.81 each while Daimler AG slipped 0.32% lower at €50.29 each. The Stoxx Europe 600 Automobiles and Parts index, which had traded 0.75% higher earlier in the session, slipped 0.13% into negative territory at 476.88 points following the Wirtschaftwoche report.
President Trump has consistently referenced the European auto sector as a potential target for tariffs in his effort to reduce what he has called "unfair" trade agreements between the United States and its largest economic partners.
Trump said yesterday that new tariffs were "being studied" after insinuating that U.S. carmaker General Motors (GM) "would not be closing their plants in Ohio, Michigan & Maryland" if previous levies had remained in place.
General Motors is very counter to what other auto, and other, companies are doing. Big Steel is opening and renovating plants all over the country. Auto companies are pouring into the U.S., including BMW, which just announced a major new plant. The U.S.A. is booming!— Donald J. Trump (@realDonaldTrump) November 29, 2018
U.S. Trade Representative Robert Lighthizer floated the idea of a 40% tariffs on China-made cars and criticized Beijing for its "egregious" trade policies ahead of a planned Saturday meeting between Trump and Xi on the sidelines of the G20 summit in Argentina. Juncker will also attend the G20 meeting, but isn't scheduled to meet with Trump.
"China's policies are especially egregious with respect to automobile tariffs," Lighthizer said. "At the President's direction, I will examine all available tools to equalize the tariffs applied to automobiles."
Earlier this year, Trump threatened to apply a 20% tariff on all cars coming into the United States from the European Union, although he did not specify how and when the charge may be put in place. His comments came on the same day that the EU imposed its own retaliatory tariffs on $3.4 billion worth of U.S. goods in response to the Trump administration's charge in non-American steel and aluminium.
The average EU tariff on U.S. goods imported into the bloc is 3%, according to Export.gov data, although non-EU automobiles are subject to a 29% tariff when brought into the bloc, of which 19% is a value-added tax and 10% is a tariff based on current World Trade Organization (WTO) rules.
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.