Recall that China has tried to play Europe for the chump, via Reuters:
China is putting pressure on the European Union to issue a strong joint statement against President Donald Trump’s trade policies at a summit later this month but is facing resistance, European officials said.
In meetings in Brussels, Berlin and Beijing, senior Chinese officials, including Vice Premier Liu He and the Chinese government’s top diplomat, State Councillor Wang Yi, have proposed an alliance between the two economic powers and offered to open more of the Chinese market in a gesture of goodwill.
One proposal has been for China and the European Union to launch joint action against the United States at the World Trade Organization.
But the European Union, the world’s largest trading bloc, has rejected the idea of allying with Beijing against Washington, five EU officials and diplomats told Reuters, ahead of a Sino-European summit in Beijing on July 16-17.
Instead, the summit is expected to produce a modest communique, which affirms the commitment of both sides to the multilateral trading system and promises to set up a working group on modernizing the WTO, EU officials said.
“China wants the European Union to stand with Beijing against Washington, to take sides,” said one European diplomat. “We won’t do it and we have told them that.”
Despite Trump’s tariffs on European metals exports and threats to hit the EU’s automobile industry, Brussels shares Washington’s concern about China’s closed markets and what Western governments say is Beijing’s manipulation of trade to dominate global markets.
“We agree with almost all the complaints the U.S. has against China, it’s just we don’t agree with how the United States is handling it,” another diplomat said.
But it’s China that looking more isolated today, via Quartz:
The US may have been accused by China of “opening fire on the world” with its punitive trade tariffs, but it looks like officials may be making more progress in Europe’s largest economy Germany.
Richard Grenell, the US ambassador to Germany, has caused quite a stir since he arrived in Berlin in May, lecturing German companies to stop trading with Iran, and saying he planned to “empower” anti-establishment conservatives in Europe. However, with the threat of punitive US tariffs on its cars looming, Grenell certainly has the attention of Germany’s powerful car bosses.
German business daily Handelsblatt reports (link in German) that Grenell met Daimler CEO Dieter Zetsche, BMW CEO Harald Krüger, and VW CEO Herbert Diess on Wednesday evening to discuss both sides abolishing all tariffs on each others car imports. Right now, the European Union adds a 10% tax on imported US cars, and the US puts 2.5% on EU car imports, and is threatening to ramp that up to 25%. As part of the deal, president Donald Trump would reportedly want German carmakers to invest more in the US.
Last night’s meeting was not the first time the carmakers and Grenell have talked about abolishing two-way tariffs. The Wall Street Journal (paywall) reported on June 20 that the ambassador had been meeting with all Germany’s most important car companies, and that they were already behind the idea.
Chancellor Angela Merkel is worried about the damage a car trade war could do to one of Germany’s core industries. “We now have tariffs on aluminum and steel and we have a discussion that is far more serious,” she told parliament, referring to auto tariffs. “It’s worth every effort to try to defuse this conflict so it doesn’t turn into a war.”
More from Yahoo:
German Chancellor Angela Merkel said Thursday she would back opening talks with trading partners on lowering automobile tariffs, in what appeared to be an olive branch to US President Donald Trump as the EU battles to dissuade him from imposing hefty levies on European cars.
But Merkel said that any negotiations on lowering tariffs in one area could only be conducted with “all the countries with which we have trade in cars,” rather than just with the United States.
A deal with the US alone “would not conform with WTO” rules, she said.
“We can either have negotiations about a wide range of tariffs, for 90 percent of goods,” Merkel said in a reference to the stalled talks for a transatlantic free-trade deal known as TTIP.
“Or we can talk about one type of goods, but then we must accord the same treatment to all trading partners of the world. That’s an option I could imagine,” she added.
Interestingly, Nomura sees it all as deflationary:
US pursuit of beggar thy neighbor policies: is it leading to a whole new world for global automakers?
Automakers have set up an intricate web of suppliers and assembly plants globally to leverage the benefits of trade agreements, while keeping FX risks at acceptable levels. The pursuit of beggar thy neighbour policies by a large, connected, and heretofore open Now 3 mths 12 mths US Europe Japan Korea Brazil Russia India China Thailand Indonesia Nomura | Global Autos Outlook 4 June 2018 4 economy such as the US threatens to upend this structure.
In this edition of the Global Autos Outlook, we therefore look at trade-related challenges (and opportunities) facing global automakers, possible strategies they could adopt to cope, and potential winners and losers over the near-to-medium term. Risk of “No NAFTA” has risen, although our base case remains NAFTA 2.0 Trump’s openly protectionist policies have increased the risk of a “No NAFTA” outcome, although our base case still remains that NAFTA will be renegotiated.
Nearly 25 years of NAFTA have integrated the North American auto industry very tightly. If NAFTA is dissolved, it will impact all automakers operating in North America. In particular, we think GM and FCA could be hit the hardest (higher import tariffs cut 40% of GM’s FY2018E EBIT, 23% of that for FCA). In our opinion, it increasingly appears that the US President’s decision-making is centered on autoworkers, even if that is to the detriment of the automakers. Thus, US automakers getting hurt might not hold back Trump from making such a move.
Auto industry staring at global excess capacity, no matter what the outcome of the Section 232 drama
The US Department of Commerce has started a Section 232 investigation into US imports of autos and auto parts. Under the worst case scenario, this may result in broadbased import tariffs slapped on US automotive imports after the investigation concludes and reports back to the President in several months. US imports of new passenger vehicles and auto parts totaled $333bn in 2017. Import duties on such a large volume of goods would be highly disruptive and impact all the major car exporting countries/regions such as Mexico, Canada, Japan, the EU, and South Korea.
While we think that the threat of tariffs is largely Trump’s negotiation tactic to get a better NAFTA deal, we caution investors to pay attention, as the tail risk (of import tariffs materializing) is not negligible. Furthermore, no matter whether new auto tariffs are imposed or not, global carmakers, irrespective of nationality, are feeling pressured to build plants and increase employment in the US. This is likely to lead to increased capacity in the US, where car demand is no longer growing.
On the other hand, non-US carmakers are unlikely to cut capacity at home or elsewhere, leading to excess capacity globally. This will impact most markets except for relatively closed ones such as China, India, and Southeast Asia, due to their existing high import tariffs. For global automakers, we therefore see a binary outcome from a growing list of protectionist measures being deployed by the US. Neither outcome is good news, with automakers staring at excess global capacity in either case:
If Section 232 tariffs are imposed, it (largely) cuts off imports into the domestic US market. However, that would mean that there is excess capacity outside the US, as existing foreign plants supplying to the US (7.88mn/$192bn new PVs, 8.2% of global volume, and $141bn auto parts in 2017) have to find markets elsewhere.
If new tariffs are not imposed, we still have additional capacity coming up in the US as automakers are goaded into doing so to avoid political pressure. This also leads to a global supply-demand imbalance in the auto industry.
Silver linings: China’s import tariff cut, forthcoming JEEPA
Although US protectionism is a real threat, we see a couple of silver linings. China announced an import tariff cut for autos, from 25% currently to 15% beginning 1st July 2018. The Japan-EU Economic Partnership Agreement (JEEPA) was agreed upon last December and is likely to become effective in spring 2019, benefiting Japanese car exporters. One of the biggest beneficiaries from both China and the EU’s tariff cuts would be Toyota Motor.
Full report here.
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