Relief, for now.
European carmakers surged in early Thursday trading, lifting benchmarks around the region, following last night's trade agreement between the European Union and the United States that included a "major concession" on auto tariffs from President Donald Trump.
The world's two biggest economic blocs agreed to move towards a "zero tariff" approach to trade, Trump told reporters during a press conference with European Commission President Jean-Claude Juncker in Washington, and vowed to hold their current levies on various goods, including automobiles, in place while they negotiate terms of the "breakthrough" 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" in the nearly four hours of talks between the two leaders.
"The major progress today is that our American friends agreed not to increase tariffs on cars and other products during the negotiation, which is a major concession by the Americans I have to say," Juncker said. "It took three hours and a half, or even more with interruptions, with drafting sessions, text comparisons. So it was a traditional negotiation."
Volkswagen AG (VLKAY) shares rose to the top of the DAX performance index in early European trading, gaining 3.65% and pulling domestic rivals higher across the board. Luxury carmaker Porsche, in fact, was one of the biggest movers in Europe's Stoxx 600, rising 3.8% to €58.06. BMW AG (BMWYY) was marked 2.6% to the good in Frankfurt while French rivals Peugeot SA and Renault SA rose 2% and 1.5% respectively in Paris.
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Germany's Daimler AG (DMLRY) , however, lagged most of its European peers with only a 0.22% gain after the Mercedes maker posted a 30% drop in second quarter profits, and trimmed its third quarter guidance "mainly because increased import tariffs for US vehicles exported to the Chinese market mean that MercedesBenz Cars anticipates lower SUV sales as well as higher costs (which cannot be fully passed on to customers) than previously expected."
Great to be back on track with the European Union. This was a big day for free and fair trade!— Donald J. Trump (@realDonaldTrump) July 26, 2018
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.
Last month, he 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.