Germany's powerful automotive union said Monday that a trade war with the United States must be avoided "at all costs" as the home of the world's biggest carmarker scrambled to react to a weekend threat of trade tariffs from President Donald Trump.
"Punitive duties can't be the answer," said VDA president Bernhard Mattes in a statement ahead of this week's Geneva Auto show in Switzerland. "A trade war between the USA and Europe must be avoided at all costs. In such a trade war there are only losers on all sides."
The plea for calm followed an escalating war of words between European Commission President Jean-Claude Juncker and President Trump over the weekend, both of which threatened specific sectors in each other's economies as potential targets for tariffs and trade barriers after Trump reveal his intention to slap a 25% levy on steel imports late last week.
"If the Americans impose tariffs on steel and aluminum, then we must treat American products the same way," Juncker said Friday when he detailed a package of tariffs that could impact $3.5 billion in U.S. exports. "So now we will also impose import tariffs. This is basically a stupid process, the fact that we have to do this. But we have to do it. We will now impose tariffs on motorcycles, Harley Davidson (HOG - Get Report) , on blue jeans, Levis, on Bourbon."
Trump fired back the following day with a Tweet that vowed reciprocal tariffs on European cars as he alluded to a $22.3 billion "automotive vehicle and parts" trade deficit last year with Germany.
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!— Donald J. Trump (@realDonaldTrump) March 3, 2018
Germany's DAX performance index gained 0.86% by mid-day in Frankfurt even as gains were held down by notable declines for Volkswagen AG (VLKAY) , the world's biggest carmaker, which fell 1.19% to €157.60. Rival Daimler AG (DMLRY) slid 1.41% to €66.90 while BMW AG (BMWYY) slumped 1.65% to €83.00 each. The benchmark Stoxx Europe 600 Automobiles & Parts index was marked 0.04% to to downside at 605.01 points.
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.
However, 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.
Last year, the VDA said that its members employed more than 110,000 people across 265 plants active in the United States, noting that "investment in the U.S. and the international exchange of goods are inseparable for us."
However, German carmakers have also been ramping up production in Mexico, with output rising 46% after Audi launched a new assembly facility in Puebla, just a few miles south of Mexico City. In fact, of the 1.4 million light vehicles made in North America last year, 44% were produced in Mexico.
At present, only Volkswagen and Audi have operations in Mexico, but BMW plans to launch a new pant in San Luis Potosi next year, just a few months after Daimler cuts the ribbon on a joint production facility with Nissan in Aguascalientes.