A day after the European Union (EU) imposed $3.3 billion worth of retaliatory tariffs of American luxury items following on from the imposition of US tariffs on European steel and aluminium tariffs, Donald Trump has just stated that he will impose a 20% import tariff on all European cars coming into the American market if a favourable settlement to the EU-US trading disputes is not reached in short order.
Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!
— Donald J. Trump (@realDonaldTrump) June 22, 2018
This will clearly send shockwaves throughout the European Union but particularly in Germany – Europe’s largest car producing nation and the country of origin of the vast majority of European cars on American roads. Trump previously threatened barring European car imports in a clear attempt to test the waters regarding a possible European response to further protectionist actions by the US.
The powerful German business sector is already uneasy with the policy of Brussels and Berlin to escalate the trade war with America through the implementation of retaliatory tariffs. Now, in threatening some of the world’s biggest car makers with punitive tariffs when entering the substantial American car market, Trump may well be on the verge of breaking the will of EU political leaders who have previously pledged to resist re-negotiations of existing trade deals with the US.
But there is a further dimension to the strained dynamic between the US and EU. While Donald Trump dramatically pulled out of the JCPOA (aka Iran nuclear deal) in the spring of 2018, Germany, France, Britain and the EU as a whole vowed to save the agreement by continuing to work with Iran on the terms of the 2015 agreement which relaxed sanctions against Tehran, leading to European companies signing valuable agreements with the Islamic Republic.
Since then, the US has threatened to sanction European businesses and even European nations who continue to trade with Iran on the terms of the JCPOA. While Europe has put up a bold rhetorical front against the threat of US sanctions against traditional allies, the fact remains that the EU’s trade with the US is far more lucrative than the EU’s trade with Iran. However dignified the European rhetoric regarding the JCPOA might sound, at the end of the day – money talks louder than sentiment.
Today’s threat would see already expansive (by the standards of the US car market) European vehicles including Mercedes-Benz, BMW, Volkswagen, Volvo and Porsche – in addition to more exotic vehicles including Rolls-Royce, Bentley, Maserati, Ferrari and Lamborghini, become ever more out of reach of the average American driver. This would also dramatically harm the revenue stream of European manufactures while also negatively impacting the salves of American owned car dealerships who trade exclusively in European vehicles.
Therefore, with Angela Merkel already facing multiple domestic scandals stemming from the European migrant crisis which may see her governing coalition fall in a matter of weeks, pressure from the worried and angry European car manufacturers will almost certainly push the EU’s collective position over the edge in terms of quietly allowing the JCPOA to die in order to remove a major obstacle to EU-US reconciliation in the Trump era.
Iran already hinted that it is preparing for the inevitable collapse of a post-US JCPOA as the country’s Deputy Foreign Minister said that if Europe does not fully commit to retaining the deal in short order, Iran would simply exit a deal that for all intents and purposes is already in the “intensive care unit” as Deputy FM Abbas Araghchi correctly stated.
Iran is well aware that while Russia and China will not only continue their positive trading relations with Iran but likely expand them to fill the void of more slow moving European business partners, the EU’s position was always tenuous. This reality is one of the EU’s own making as Berlin and Brussels have continually pursued a policy of sanctioning Russia while being cautious to the point of self-defeating when it comes to engaging in bilateral trade deals between the EU and China that could see more Chinese goods on the European market while also allowing European goods that are popular amongst millions of affluent Chinese consumers such as luxury cars, unique agricultural products and luxury textiles to more easily enter the Chinese market.
Instead of dropping sanctions on Russia, the EU just extended them, whilst instead of urgently seeking a freer trading agreement with China, the EU continues to drag its feet on the matter. In this sense, the EU has allowed itself to be cornered by a traditional American partner which in the Trump era is becoming increasingly adversarial on both trade and to a degree on NATO cooperation, as Donald Trump insists that EU members of NATO contribute more financially to the military bloc.
Europe’s choice therefore of abandoning the JCPOA by stealth has not been its own. Instead, the EU’s refusal to open up new trading partnerships with the eastern superpowers and thereby creating a means through which to leverage the US, has led to Donald Trump winning the trade war with Europe even in its earliest days.
The EU is extremely dependant on the US market, particularly in respect of car sales. Thus, while Trump can and likely will hit Europe where it hurts, the EU has already largely exhausted its very limited ability to retaliate against America. In this sense, Trump has used the much hated EU to US trading deficit to his distinct advantage while unimaginative European policy makers who continue to be allergic to both Russia and China have given themselves no other option but to do as their master in Washington wishes.