The Volkswagen T-Cross model stands on a lifting platform in a car tower on the Volkswagen factory premises.
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President Donald Trump’s next trade battle could involve the U.S. slapping steep tariffs on auto imports from Europe — but that wouldn’t really be the White House’s ultimate goal, one expert said Wednesday.
Instead, such a move may well prove to be a “Trojan horse” for a bigger deal on agriculture, according to David Hauner, head of cross-asset strategy and economics for Europe, the Middle East and Africa at Bank of America Merrill Lynch.
Now that Trump has imposed more tariffs on Chinese goods, all eyes are turning to a potentially brewing trade war between the U.S. and Europe. The president had threatened as early as last year that he would slap a 25% tariff on car imports from the European Union. So far, however, the tariffs have not been imposed — but Trump is due to make a decision on European auto imports by May 18.
According to Hauner, however, the White House may have a tough road ahead.
“We think there will at least be an attempt by the U.S. to push for some sort of concessions from Europe. It’s gonna be very difficult particularly if Trump actually starts a discussion about agriculture,” he told CNBC’s “Squawk Box.”
He added: “Some say that car tariffs might … be a Trojan horse to actually start discussions about agriculture, because that’s where really the big business for the U.S. and Europe would be. Agriculture and Europe is politically very very sensitive when it comes to allowing American imports.”
Farmers — a key political constituency for Trump — have seen their fortunes suffering from the trade war with China, and that’s potentially a concern for the president ahead of his 2020 re-election bid.
Since his tariff threat against European autos, Trump has met the president of the European Commission, the EU’s executive body, and both decided to seek an agreement over trade and avoid tariffs. Nearly a year since their meeting, both sides have yet to start those official trade talks.
But analysts have pegged the tariffs on Chinese goods as a sign of what’s to come for Europe. Last Monday, European auto stocks fell more than 3% following Trump’s tariffs announcement over the weekend.
There could still be a deal as long as the U.S. keeps the trade discussions with the European Union to autos only, according to Hauner.
But, he said, “If the discussion will include agriculture, then it gets really, really dicey.”
“Europe is really collateral damage here because Europe has not enough domestic growth. It really depends so much on trade and that is now really its Achilles’ heel,” Hauner added.
According to the Office of the United States Trade Representative, U.S. imports for consumed agricultural products from EU countries totaled $23.9 billion in 2018, while U.S. agricultural goods exports to the EU was $13.5 billion.
Auto imports from EU countries were worth $56.4 billion. Overall, the U.S. goods trade deficit with EU countries was $169.3 billion in 2018, an 11.8% increase over 2017, according to the USTR.
Any U.S. tariffs on European cars would hit Germany’s important automobile industry particularly hard. The United States is Germany’s most important single export destination after the bloc of EU countries.
The White House wasn’t immediately available to comment.
— Reuters and CNBC’s Yen Nee Lee contributed to this report.