Leading European car makers have warned that a trade war between the United States and the European Union would stifle economic growth and cost consumers money.
US president Donald Trump has threatened to impose tariffs of up to 20% on cars imported into the country, and the US Department of Commerce is conducting a review into whether such imports pose “a risk to national security”. EU officials say raising tariffs would leave them with “no choice” but to respond.
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The US currently imposes a tariff of 2.5% on car imports, compared with the EU’s 10%. China recently dropped its import tariff from 25% to 15%. The Auto Alliance, a US industry body formed by the major car firms, says a 20% tariff on EU imports would add an average of $5800 (£5000) to the price of European cars in the country. The introduction of such tariffs could be hugely problematic for car firms that produce global models in single locations, such as Volvo. The Swedish marque recently unveiled the S60 saloon at its new factory in South Carolina.
The plant is described by Volvo R&D boss Henrik Green as “the example of free trade”.
The £770m, 2.3m-squarefoot facility is Volvo’s first in the US, and the sole production site for the S60 and, from 2021 onwards, the next XC90. Volvo plans for around half of the 150,000 models produced at the site annually to be exported, mostly to Europe and China. The facility also includes a processing centre to ready Volvo cars imported into the United States for sale.
Volvo boss Håkan Samuelsson warned that all tariffs would achieve would be to make cars more expensive. He added: “If we go from a system where we have large global trade back to the 19th century where everybody protects their own markets, it is not good news for the wealth of nations. That would be really bad, and not just for Volvo.
“The growth in the economy in the last 100 years has been based on the comparative advantages that someone is better doing one thing so they concentrate on that, and buy other stuff from someone who’s better at it.”
By choosing to produce cars in single locations, Volvo would be particularly exposed if tariffs are increased by both the US and EU. Samuelsson said the company “could not plan” for the impact of increasing tariffs, adding: “We plan to continue having an open economy, building the S60 here and selling it in Europe and China. If that’s not going to happen, you’d have to invest in Europe and China with these body types, which is hundreds of millions more investment.
And who will pay that at the end? The consumers.”
By contrast, Volkswagen’s extra scale means that it can use a far more regionalised production model, with most of its key US cars — the Atlas SUV, Passat and the forthcoming Atlas Cross Sport — all made at its plant in Chattanooga, Tennessee.
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Look at the larger picture
America has had nothing but massive growth of trade in the postwar period. An economic advantage which it still maintains to present day. A huge part of that is due to the decimation of industry across Europe by WWII. American factories were untouched and therefore able to produce goods for the world. Call it a ten year head start. To lament about mass produced British car brands is false. There are none. Most of what were considered British are American owned brands. The only European cars of any volume imported to America are German owned brands. Volvo is now Chinese; Land Rover/ Jaguar are Indian. Even American made cars have components from around the globe making the car 4with the most “American content” manufactured in the USA the Honda Odyssey Minivan. Therefore if you start taxing components is your American car now 20% more expensive as well?
In the late 1980’s I took my driving test in an Oldsmobile 88 Saloon. Having grown up driving European cars, it was a shock how bad it was. I asked the examiner if it had been in a massive accident. Any driver input was merely a suggestion to the sofa on wheels. America had handed the market to the Japanese. The first generation Toyota Camry and second generation Honda Accord were like UFO’s compared to the slop that was being foisted on the American public. You had to pay over list price to get a third generation Accord and Camry many are still on the road. BMW, Mercedes and to a lesser extent Volvo are not inexpensive cars most of them are leased, then bought used at a steep discount. BMW & Mercedes have massive plants that create employment in places where there were zero prospects. They also are very efficient and export product around the globe.
The largest automotive market is now China by a wide margin. VW has the lions’ share of that locked up. Hitting them with tariffs in America will sting. However, their products will still be in demand worldwide. A Corvette is no substitute for a Lamborghini or Porsche. As an outsider looking at Brexit the UK did quite well being part of the EU . No one forced joining. Back in the 1970’s I was a child. However we received the overseas Times and the UK was an economic mess. All the laws made by the EU the UK had to agree to and had power to influence. Time will tell if this works out. I would sit with a spreadsheet and do the math first. Just saying. Emotions are not a basis for goo business decisions.
USA has a point
As scotty5 points out the EU imposes heavier tariffs on US imports than the US does on EU imports which is not a fair way to trade. If Mr Trump is anything he is a businessman and always seeks to make a deal. I suspect the 20% tariffs are his rather blunt attempt to get the EU to negotiate. Given the state of the Brexit negotiations due to the intransigence of the EU it is quite possibly the only way to get the EU to actually discuss business. The point about Volvo's US factory being the sole supplier of the new S60 whether in the EU or not is also a good point. "Frictionless Trade" it seems is possible while staying out of the EU. Another example would be the BMW X Series production lines in South Carolina where four cylinder engines are supplied direct to it from BMW's engine plant at Hams Hall in the UK. Last time anyone checked South Carolina was not in the EU so how can this be possible as according to Remainers and Project Fear it is simply impossible to have integrated production lines unless every factory is in the EU? That's right the Remainers are talking Bulls**t as usual.
EU playing unfair?
Pains me to say this but I in part agree with Trump on this (nothing else tho!). The US place a 2.5% import duty on EU cars whilst the EU have a 10% duty on US cars - that's plainly unfair, as is Trumps 20% suggestion.
Why not make it a make it a level playing field and have equal import duties?
Another thing reading above - the US plant will be the sole producer of the S60 and in the near future, the XC90. Isn't the current XC90 built in Torlanda, Sweden? As far as I'm aware, Sweden isn't leaving the EU so why has Volvo taken the decision to leave this slick working, brilliantly efficient EU system?
If the above were to happen here, the remainers would be 100% blaming Brexit.