Never a dull moment.
Presumably fearing that moving ahead with auto tariffs at a time when markets are still reeling from the latest escalation in the China spat, Donald Trump has decided to delay the imposition of duties on cars.
“[The] White House plans to delay imposing tariffs on auto imports for now”, Bloomberg’s Jennifer Jacobs tweeted, adding that “Trump’s deadline to decide on the tariffs is May 18, but aides at a White House meeting yesterday discussed delaying for up to six months”.
The plan, apparently, is to “let the Japan and EU trade negotiations play out.”
Maybe. But one imagines part of the “plan” is to avoid a scenario where Trump plows ahead with another momentous tariff decision with the potential to roil global stocks. Remember, the auto tariffs decision is no small matter. In fact, the imposition of tariffs on auots under the 232 probe would raise the odds of protectionist measures pushing up consumer prices in the US and would, more generally, be a sign that hardliners are fully in control of trade policy.
“The latest tariff hike [on China] raises the total annual target value of new tariffs, the tariff rate multiplied by the pre-tariff level of imports, from about $40bn to about $70bn”, Goldman wrote over the weekend, warning that “a potential final tranche on all remaining imports from China would exceed all previous rounds combined in target value at about $75bn if implemented, and auto tariffs excluding Canada and Mexico would add another $50bn.”
The delay is great news for European auto shares and for Europe in general. Tensions are running high between Washington and Brussels thanks to the Iran issue and the prospect of levies on cars has cast a pall over an already bleak outlook for the bloc’s economy. The SXAP spiked on the news.
The euro jumped as well.
This serves as something of a stick save for European assets on a day when concerns over Italy’s fiscal position had resurfaced thanks to adversarial comments from Matteo Salvini.
Of course, Trump is Trump, which means even if the tariffs are delayed, the threat isn’t going away. Indeed, you could argue that this just adds further uncertainty around the issue. The US president has railed against what he deems “unfair” trade in autos for as long as anyone can remember and don’t let it be lost on you that this is the same Donald Trump who last year told Emmanuel Macron that he (Trump) won’t stop until he’s rid Fifth Avenue of Mercedes. For anyone who needs a refresher, here is how that conversation supposedly went down, according to WirtschaftsWoche (this is translated):
US President Donald Trump has announced to French President Emmanuel Macron to exclude German premium car makers from the US market. On Macron’s visit to Washington in April, Trump said he would maintain his trade policy until no Mercedes models rolled on Fifth Avenue in New York. This reports the WirtschaftsWoche, citing several diplomats from Europe and the United States .
Last month, PIMCO’s Libby Cantrill reminded markets that Trump shouldn’t be underestimated on this issue. “While tariffs on autos or auto parts would be exceedingly unpopular with many US stakeholders, including members of Congress and even the US auto companies the tariffs are meant to protect, President Trump’s long-standing focus on this issue should not be underestimated”, she wrote, in a blog post, adding that “he has argued about the unfairness of trade terms and the need for tariffs on auto imports since the 1980s.” She went on to say the following in the same post:
Additionally, if the past two years are any indication, the president fundamentally believes that the threat – and in some cases, the imposition – of tariffs are effective mechanisms to gain leverage over our trading partners. Similar to how he imposed steel and aluminum tariffs on Canada and Mexico when negotiating the USMCA and tariffs on Chinese goods before entering into negotiations with China, President Trump may move forward with tariffs on European autos as the U.S.–Europe negotiations start in earnest.
Now we’ll all wait on the inevitable tweets.