Trump May Punt on Auto Tariffs as European Carmakers Propose Plan

Trump May Punt on Auto Tariffs as European Carmakers Propose Plan

FRANKFURT — The Trump administration, in a move that could forestall potentially devastating tariffs on foreign automobiles, is in discussions with European carmakers about increasing their investment and employment in the United States.

The talks come ahead of a Wednesday deadline for President Trump to decide whether to make good on his threat to impose tariffs on foreign cars and car parts, which his administration has declared a national security threat. Mr. Trump is widely expected to delay the tariffs for several months, because there is little appetite in the administration to move ahead with them now, according to people familiar with the deliberations.

While neither side will call it a deal, the carmakers have worked out an understanding with American officials in an effort to prevent Mr. Trump from imposing the tariffs.

German carmakers have quietly promised big investments in their United States factories, American and European officials said Monday. Foreign carmakers hope that pledges of larger investments in the United States could give Mr. Trump enough bragging rights to delay the tariffs.

Mr. Trump has used the threat of 25 percent tariffs to pressure the global auto industry to locate more car manufacturing inside the United States. But government officials and industry executives say the administration has had little appetite to go ahead with the taxes and open yet another front in Mr. Trump’s global trade war. Such a move would compound economic damage from Mr. Trump’s trade fight with China, with economists estimating that car tariffs could raise the price of a new car by $1,400 to $7,000, weighing on American consumers.

As with other trade measures, White House advisers caution that the ultimate decision is up to Mr. Trump, who sees tariffs as a powerful tool to extract concessions from trading partners.

Mr. Trump announced in a proclamation in May that imports of foreign cars were harming the American car industry and posed a threat to national security. He gave other countries 180 days to address the problem through trade agreements with the United States. The measure was aimed primarily at narrowing the large trade surpluses in automobiles and auto parts that the European Union, South Korea and Japan run with the United States.

Japan has since signed a trade agreement with the United States that includes a verbal pledge by Mr. Trump not to proceed with a 25 percent tariff on cars and car parts. Canada and Mexico reached an agreement to avoid the tariffs as part of talks over a North American trade pact. And South Korea signed a revised trade deal with the Trump administration in September 2018 that it has long argued should shield it from tariffs.

But the ability of the European Union to avoid the tariffs has been less assured, given a volley of harsh words between the governments and only limited progress on a new trade agreement. Mr. Trump has repeatedly accused Europe of unfair trade practices that have allowed a flood of foreign cars into the United States, and efforts to resolve his concerns through trade talks have been stymied by disagreements about what should be included in a new pact.

To allay Mr. Trump’s concerns, the German car industry is promising to create 25,000 jobs at factories in the United States, according to a senior American official who spoke on condition of anonymity. The companies will point to investments they have already made that in effect lock them into their promises.

A senior executive in the German car industry and a high-ranking European official, both of whom also insisted on anonymity, confirmed the broad outlines of the understanding. Daimler, BMW and Volkswagen declined to comment on any talks.

The Office of the United States Trade Representative, which will submit a report to the president by Wednesday to update him on negotiations with the European Union, has asked all international automakers for their United States investment numbers, an industry executive said.

The office did not respond to requests for comment, and it is not clear what the report will conclude. But American officials have recently expressed optimism about the chances of avoiding tariffs. Commerce Secretary Wilbur Ross said in an interview with Bloomberg News that the administration was hopeful that discussions with individual automakers would “bear enough fruit” that it would not be necessary to put tariffs into effect.

“We’ve had very good conversations with our European friends, with our Japanese friends, with our Korean friends, and those are the major auto producing sectors,” Mr. Ross said.

Jean-Claude Juncker, the president of the European Commission, said in an interview published Friday that Mr. Trump would not go ahead with tariffs.

“He won’t do it,” Mr. Juncker told the Süddeutsche Zeitung newspaper in Munich, the home of BMW. “You are speaking with a fully informed man,” Mr. Juncker added. “Trump will grumble a little, but there won’t be any auto tariffs.”

Foreign governments and carmakers have long pointed to the investments they have made in the United States to argue against the tariffs.

When Mr. Trump met with the Japanese prime minister, Shinzo Abe, in Japan in June, Mr. Abe presented him with a map of the United States embellished with dozens of investments made by Japanese companies — including Mitsubishi Motors’ new headquarters in Tennessee and a $100 million investment by Chuo Precision Industrial in Kentucky.

“Japan has FIVE Additional Investments in JUST ONE MONTH,” the document read.

The president has not yet announced a decision, and there is no guarantee that dangling new investments will stop him from imposing levies. Mr. Trump has repeatedly criticized Europe for flooding the American market with cars while limiting imports of United States vehicles. But Mr. Trump previously rejected a more straightforward proposal from Europe to simply scrap automotive tariffs on both sides of the Atlantic.

Some analysts say Mr. Trump and his advisers are more interested in the leverage the specter of auto tariffs creates than in actually imposing the levies. They have been willing to threaten tariffs to extract concessions in negotiations with Japan, South Korea and Europe. But most of Mr. Trump’s advisers are opposed to going ahead with the taxes, which have provoked widespread disapproval even among the American car industry they are intended to protect.

Mr. Trump could decide to try to preserve his leverage by extending the deadline to make a decision. That would be frustrating for European officials, who say the trade war’s uncertainty has been dragging down economic growth. Germany, whose economy depends on car making, is on the brink of recession.

The tariffs could encourage some manufacturers to move facilities to the United States, but they would also most likely invite retaliatory levies from Europe and slow the auto market altogether by increasing the costs of cars. Europe sent $42.8 billion of motor vehicles to the United States in 2018, more than a fifth of the cars imported by the United States.

“Our industry benefits from clarity,” said Ann Wilson, the senior vice president of government affairs of the Motor & Equipment Manufacturers Association, which represents car parts makers. The threat of car tariffs, along with tariffs on China and global steel and aluminum, “have caused our members to rethink investment in the United States,” she said.

Tariffs could also backfire on the economy of the regions in the southeastern United States where Mr. Trump’s support is most fervent. The German carmakers BMW, Daimler and Volkswagen have large factories in South Carolina, Alabama and Tennessee that have already been hit by fallout from Mr. Trump’s trade war.

Republican political leaders from those states have been urging the president not to impose tariffs, as have American carmakers.

Last month Richard Grenell, the United States ambassador to Germany, visited BMW’s factory in Spartanburg, S.C., and Daimler’s Mercedes-Benz factory in Tuscaloosa, Ala.

“They have created tens of thousands of US jobs. #moretocome,” Mr. Grenell tweeted.

“We’ve been meeting and talking regularly over the last 18 months,” Mr. Grenell said in a statement at the time. The visit to the factories was “quite productive, and I am hopeful we remain on this path.”

Jack Ewing reported from Frankfurt, and Ana Swanson from Washington. Peter Baker contributed reporting from Washington.

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