US tariff income has recently reached record numbers. According to the latest figures the new tariffs have resulted in an income of 7 billion dollars, a 9% increase from the previous month. Approximately 5 billion of it is from Chinese imports while the rest is from other countries. These numbers are likely to rise even further in October, since the September figures don’t yet include the tariffs to be imposed on 7.5 billion dollars worth of European Union products unless they come to an understanding with Washington.
The President originally proposed a 25% tariff on motor vehicles & machine parts imported from the EU back in May. The decision to enact it was eventually postponed to after the European Parliament elections in mid-November. Fortunately there have been some favorable developments on that matter over the last few weeks. US Secretary of Commerce Wilbur Ross recently stated that due to their promising negotiations with EU companies the administration doesn’t plan on imposing any protective tariffs on the automotive industry.
The trade tensions caused by the recent tariffs seem to slowly be winding down. This can be attributed to both economic and partially political reasons. A potential economic downturn could spell trouble for the incumbent in the upcoming presidential election. It does seem like the US economic growth is starting to lose some momentum even after the dollar weakened due to The Fed slashing interest rates for the third consecutive time. The latest macroeconomic indicators suggest that bit by bit even the domestic market is now starting to feel the effects of the tariffs. Many have cited the US-China trade conflict as a possible reason for the global economy to slow down. The worst case scenario for the President would be if a shrinking global economy were to put US economic growth at risk.
A more relaxed trade climate would do more than just give US agricultural areas in the middle of the country some breathing room. It could also strengthen US-EU trade relations which both sides stand to benefit from greatly. The changes in economic circumstances make it seem as if the original national security case for tariffs on auto and steel & aluminum imports may take a back seat. The other suggested reason was the 140 billion euro trade surplus the EU has over the US. Germany alone contributes approximately half of said surplus. Chancellor Angela Merkel claims the German auto industry poses no national security risk to the US. She also emphasized how much the US benefited from their relationship, including German companies creating 113,00 jobs and 300 factories in The States.
According to Brussels, if President Trump were to impose 25% protective tariffs on European Union auto imports, they would retaliate with their own tariffs on 35 billion dollars worth of US goods. This figure is actually increased from the 20 billion euros they initially intended to respond with.
The German Ifo Institute for Economic Research suggests that if the US were to enact the 25% auto tariffs then the resulting price increase on German cars in the US could decrease imports by as much as 17 billion euros in value. Even if they were able to re-direct the sales of some of those cars and parts to other countries to cut their losses, even in a best case scenario they could still suffer losses of approximately 12 billion euros. The companies at risk include Volkswagen, Daimler and BMW, all of which have not only high export exposure, but also a large number of US based factories.
At this point in time the two allied sides have an opportunity to settle their disagreements amicably. One possible way for them to reconcile is to open up the European market to US agricultural products.