President Donald Trump has dodged an immediate collision with the EU and Japan on trade by deferring a decision to impose tariffs on cars and auto parts by up to six months, according to people familiar with the matter.
The delay proposed by the Trump administration is merely a reprieve for officials in Brussels and Tokyo, as well as car industry executives who would be most affected by the action — because the threat of levies from Washington will remain on the table for most of 2019.
Most industry lobbyists were expecting Mr Trump to delay the imposition of car tariffs, or to announce and then suspend them, in order to avoid blowing up trade relations with the EU and Japan amid an escalation of the US’s trade dispute with China.
“You can’t fight multiple trade battles at the same time. You have to pick who your biggest enemy is,” said one former US trade official who has been following the deliberations on car tariffs.
Shares in US and European automakers and suppliers raced higher, reversing declines seen earlier in the day. The Stoxx 600 automobile and parts index rallied 2 per cent after jumping as much as 2.5 per cent on the news. Porsche and Mercedes-Benz owner Daimler, up 3.3 per cent and 2.9 per cent respectively, saw some of the largest gains.
General Motors, Ford and US-listed shares of Fiat Chrysler all erased their losses to trade higher. The S&P 1500 Composite auto manufacturers index was up 1 per cent.
Deferring the decision on car tariffs marks the latest punt by the Trump administration on the issue.
Most economic and trade officials — with the exception of Peter Navarro, the White House manufacturing adviser — have been sceptical of car tariffs at this stage, and have argued against it internally, according to people with knowledge of the discussions.
However, Mr Trump has repeatedly and publicly dangled the threat of car tariffs against the EU and Japan since taking office.
A move to impose tariffs on cars would have almost certainly blown up trade relations with the EU and Japan, and other allies including South Korea. The Trump administration has launched trade negotiations with Brussels and Tokyo, and while talks with the EU have stalled, they are advancing more rapidly with Japan.
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As the Trump administration sought to avoid a new, severe, dust-up with the EU and Japan, its officials sought to resolve a dispute with Canada and Mexico over steel and aluminium tariffs imposed on the countries last year. Chrystia Freeland, Canada’s foreign minister, was in Washington on Wednesday to meet Robert Lighthizer, the US trade representative. One official close to the negotiations said no deal was imminent.
Although Steven Mnuchin, the US Treasury secretary, said an agreement was “close”, Ms Freeland stopped of short of such optimism. She said she had a “good conversation” with Robert Lighthizer, the US trade representative, and would continue to “make the case” that the metals tariffs should be removed.
But she reiterated that ratification of the revision of Nafta — agreed by Washington, Ottawa and Mexico City last year — would be “very, very problematic” on the Canadian side if the US did not lift the levies.
The decision to delay a decision on car tariffs could help ease anxiety on Capitol Hill about the impact of Mr Trump’s adversarial trade policies on the US economy and markets. Many lawmakers from both parties have worried that tariffs on the auto sector would have severe repercussions on the economy, particularly as they would also cover car parts.
Foreign manufacturers operating in the US — from Daimler, BMW and Volkswagen to Japan’s Toyota and South Korea’s Kia — would be harmed by the tariffs, but US carmakers have opposed them too.
“We’re clearly not as impacted given our deep US footprint, but it would clearly be a cost — we don’t think it’s good public policy or good for industry, or good for the country,” said Matt Blunt, who leads the American Automotive Policy Council, which represents General Motors, Ford and Fiat Chrysler.
The six-month delay, following a meeting of US trade and economic officials on Tuesday, was first reported by Bloomberg News.