With little apparent progress in U.S.-China trade talks, the Trump
administration could be about to open up a new front in the trade wars
by taking on the European auto industry — and that could spook markets.
U.S. negotiators head to China next
week, and while there are few signs any kind of deal is near, many
strategists expect to see some signs that talks will continue and an
eventual agreement will be reached, even if a March 1 deadline on new
tariffs is pushed back.
But while the market has
focused on those talks, another battle is brewing. The Commerce
Department by Feb. 17 is expected to release a broad report on auto
imports and national security, and experts say a part of that report
could recommend tariffs on European autos.
The White House would then
have 90 days to respond.
Dan Clifton, head of policy research at Strategas, said Trump could be
using the threat of auto tariffs as a way to get the EU to cooperate on
other matters. The EU has been resisting efforts to include U.S.
agriculture in a trade deal. "Just because there's a report does not
mean tariffs will go into effect," he notes.
But some economists expect the administration to move on the auto
tariffs, specifically on European cars. For instance, UBS economists
said they expect 25 percent tariffs to be placed on finished vehicles,
not parts. The administration then could grant exemptions to other
countries that have cooperated, like Korea, Canada and Mexico, but the
European Union would not be exempted.
"It just seems like if
people had been worried about the tariff war with China, this would be
another reason for people to worry. In our view, this is not a macro
event for the U.S. because the auto industry seems to be pretty tariff
savvy and can get around them," said Seth Carpenter, chief U.S.
economist at UBS.
Some strategists fear investors are keenly focused on China, and
expect a resolution, but could be surprised by ramped-up trade friction
with Europe.
"The market would tank,"
said Peter Boockvar, chief investment officer at Bleakley Advisory
Group. "The market has spoken loud and clear that it's had enough of
these tariffs. ... The market is fed up with this. Global growth is
slowing dramatically because of trade. You want to put another bullet in
it's head?"
Read more: Trade war headlines could get much worse before they get better
