Trump escalates trade war talks, threatens 20 percent tariffs on imported cars

June 22, 2018

President Donald Trump didn't back down Friday on the rising war of words with the European Union when he announced that he would consider a 20 percent tariff on cars imported from Europe.

The tariff could hike new car prices by thousands of dollars on popular models from automakers such as BMW, Mercedes-Benz, Volkswagen, Volvo, Audi, Buick, Honda, Jaguar, Jeep, Fiat, Land Rover, and Porsche.

For example, the base price for a 2018 Jeep Renegade, which is built in Fiat Chrysler Automobiles' plant in Melfi, Italy, and starts at $19,390, would go up by nearly $3,400. Luxury cars could add thousands more to their bottom lines.

This week, Daimler told investors that it was bracing for a trade war between Trump, China, and now Europe, and issued guidance for lower profit expectations based lower sales due to escalating tariffs.

At a plant opening this week near Charleston, South Carolina, Volvo CEO Hakan Samuelsson warned against high tariffs and said it could threaten jobs in the U.S. Samuelsson repeatedly referred to "free and open" trade policies that wouldn't create barriers to automakers.

The U.S. already charges a 2.5 percent tariff on imported vehicles, except pickup trucks, which are taxed 25 percent. The so-called "Chicken Tax" on light trucks has effectively isolated the U.S. in truck makes and models and required automakers to invest billions into production facilities in North America to produce the trucks and skirt the steep tariff.

That Chicken Tax has been a relative boon for jobs at those production plants, but has also virtually narrowed the number of available makes and models available to shoppers—new products like compact pickups have been difficult to make at a profit and relatively slow to market.

Trump's ire may be directed at a 10 percent import tariff on American cars sold in those countries. The U.S. exported roughly $53 billion in passenger cars last year. BMW's plant in Spartanburg, South Carolina, is its largest in the world and exports nearly 3 out of 4 SUVs it makes.

Imposing a steep tariff on imported cars could also virtually eliminate inexpensive models that American automakers have outsourced to production plants in countries with cheaper labor.

Trump has threatened to levy a 25 percent tariff on goods coming in from China, where the Buick Envision, Volvo S60 Inscription and S90, and Cadillac CT6 plug-in hybrid are made. In enacted and passed down to consumers, a 25 tariff on the 2018 Buick Envision would raise the cost of that SUV by nearly $6,000 in some trims.

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