The European Commission has proposed retaliatory tariffs that could impact $3.5 billion in U.S. goods each year if President Donald Trump goes ahead with a planned levy on steel and aluminium imports, according to reports, a move that could escalate tensions between the world's biggest economic trading blocs.

Bloomberg news reported Tuesday that a draft EU list of potential tariff targets, which would be hit by the same 25% levy Trump has suggested for steel imported into the United States, includes Harley Davidson Inc. (HOG) motorcycles, t-shirts, blue jeans and bourbon. It also adds orange juice, corn and various agricultural products alongside cosmetics and yachts. Collectively, Bloomberg reported, the list could impact €2.8 billion in U.S. goods. 

"If the Americans impose tariffs on steel and aluminum, then we must treat American products the same way," Juncker said Friday when he hinted at 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, on blue jeans, Levis, on Bourbon."

The report follows several pleas for calm in the brewing trade dispute from Europe's automotive industry, which relies heavily on both U.S.-based manufacturing and sales to drive a significant portion of its annual profits and was shaken by a Friday Tweet from the President that singled the region's automakers out for potential retaliation.

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

Earlier Tuesday, the European Automobile Manufacturers' Association (ACEA) said the two markets had been "integrated for decades" and stressed that international trade "is an important pillar of the European automobile industry's competitiveness."

"It is important to note that European manufacturers do not only import vehicles into the US, but that they have a major manufacturing footprint there, providing significant local employment and generating tax revenue," said ACEA secretary general Erik Jonnaert at the Geneva Motor Show . "Indeed, some European manufacturers have their biggest plants not in the EU, but in the US."

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.

As Jonnaert noted, 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, Germany's powerful VDA automotive lobby 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.

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