Ok, so just about the last thing anyone needed on Friday was more trade bombast from Donald Trump.
As you’re undoubtedly aware, Daimler cut its outlook after the bell on Wednesday, becoming the first major company to slash profit forecasts based on trade jitters. That news tanked the European autos sector, which suffered through its worst day since Brexit, capping off a five-day slide:
For its part, Daimler was crushed, falling nearly 5% to its lowest in almost two years as CDS spreads widened out not only on the Mercedes manufacturer, but also on Volkswagen and BMW:
Well, fast forward to Friday and the SXAP was attempting to limp into the weekend without suffering another day in the red when…
That is of course a reiteration of a threat initially made late last month and it underscores Albert Edwards’ contention from his Thursday missive which, for those who missed it, contained the following excerpt:
It doesn’t take a genius to see what’s coming down the line after completion of the current US probe into whether vehicle imports have damaged the US auto industry. President Trump has already told French President Macron to expect 25% tariffs on imported autos on the same ‘national security’ grounds used to impose US steel and aluminum duties in March [and] Trump has previously expressed his disdain at German luxury brands, particularly Mercedes [which he] has said he would tax off Fifth Avenue!
There you go. And here’s the knee-jerk in the SXAP:
I guess Trump is indeed determined to rid 5th Avenue of Mercedes.
For now, we’ll leave you with some further excerpts from Albert Edwards:
My own observation from a recent two-week trip driving around Lake Tahoe, Yosemite and Sequoia Park is that US automakers appear to have been virtually wiped out in the saloon car market there, and it seems about 80% of saloon cars on the road there are Japanese and South Korean rather than European. But maybe that is just a west coast thing.
I did observe though that the US automakers dominate the pick-up and light truck market. But that may be due to the 1964 US Chicken Tax (tariff). What the dickens is that you ask? Wikipedia explains that “the Chicken Tax is a 25% tariff on light trucks (and originally on potato starch, dextrin, and brandy) imposed in 1964 by the United States under President Lyndon Johnson in response to tariffs placed by France and West Germany on US chicken imports. Eventually, the tariffs on potato starch, dextrin, and brandy were lifted, but over the next 48 years the light truck tax ossified, remaining in place to protect U.S. domestic automakers from all foreign competition.”
The widely divergent 10% vs 2.5% tariff rate on autos between the EU and the US may indeed look like an anomaly in favour of the EU, but it is nothing compared to the 25% protection US light trucks and pick-ups receive (includes two-seat SUVs). No wonder US automakers are clucking all the way to the bank as they dominate this segment of the market.