BERLIN — Donald Trump's protectionist push is prompting a trade war with the entire world — Germany included, as his announcement last month about steel and aluminum tariffs made abundantly clear. But that, it turned out, may have just the tip of the iceberg. He's now threatening Germany's most important industry: auto manufacturing.
On Friday evening, most German auto industry workers were on their way home for the weekend when Trump's plans leaked. To protect domestic carmakers, the U.S. government wants to raise environmental standards in such a way that it becomes more expensive — especially for foreign manufacturers like the Germans — to fulfill them.
This should increase prices for non-U.S. manufactured cars. The idea, of course, is that more expensive cars don't sell well in the price-sensitive U.S. markets and that U.S. manufacturers will therefore benefit. That the measures would also hurt U.S. consumers, by increasing car costs, seems to be of little concern to the president.
German manufacturers, not surprisingly, are unhappy about the news. "Even if the tendency to foreclosure of markets is currently increasing, protectionism is in no way a means to promote your own economy," the Association of the Automotive Industry (VDA) responded. "With more and more new threats coming our way, we can't keep up with this debate. The recent announcement by the Trump administration shows once again the importance of dialogue with the U.S. and the continuation of international trade talks."
The VDA calls for dialogue and supports the idea of a common transatlantic agreement that can reduce tariff and non-tariff trade barriers — a new edition, in other words, of the failed Transatlantic Trade and Investment Partnership, or TTIP. For now, though, there are no such discussions in the works.
Instead, there are rumors and reports, including from the Wall Street Journal, that Trump has called on the U.S. Environmental Protection Agency to rigorously test vehicles manufactured abroad. For some of those vehicles, that could result in the use of much more expensive parts.
Volkswagen and its infamous diesel exhaust scandal may have played a part in this by giving Trump the perfect excuse for his plans. The German car manufacturer has an estimated 3.5% market share in the U.S.
Complicating matters is that many "foreign" cars are actually assembled in the United States, and vice-versa. Car production has long been a global business. Parts are made in one country and then shipped elsewhere for assembly. The question, then, is where to draw the line; how to define a specific vehicle line as "imported." If Trump goes through with the plan, U.S. authorities will have to answer that question, to decide specifically what does and doesn't define a vehicle as "made in the USA."
The lobby group Global Automakers, which includes the German corporations VW, BMW and Daimler, is raging against Trump's plan. These non-tariff barriers are a "bad idea and a cover for protectionism," the group argues.
For the United States, the move proved to be both a blessing and a curse.
What's more, the United States has been working for decades to reduce such market barriers to its own trading partners. For years, for example, U.S. automobile companies complained about market entry barriers in Japan and South Korea. The fact that the United States itself would come up with such ideas is complete irony.
That said, this isn't the first time U.S. authorities have tried to stymie competition from foreign automobile makers. In the late 80s and early 90s, to protect domestic manufacturers from increasingly popular Japanese cars, the U.S. made imports more expensive. Japanese carmakers, as a result, shifted production to America.
For the United States, the move proved to be both a blessing and a curse. Employment rose. Honda, Toyota and Nissan today operate a total of eleven U.S.-based plants, more than their German competitors, and employ a huge number of people. The end result, though, was even more competition for U.S. automakers like GM and Ford.
If Trump really does attack foreign auto industries this way, the steel and aluminum dispute may turn out to be just a prelude to a much greater policy shift. America's trading partners, in that case, must prepare for the worst — and not just China.
The question is: What kind of deal would Trump be ready to accept to spare the auto industry? Keep in mind that the U.S. president routinely confuses trade issues with other topics. In the steel and aluminum dispute with Europe, for example, he called for an increase in military spending by the European partners in NATO.