© Bloomberg/Getty ImagesTrump’s new threat comes after the EU imposed tariffs on a range of US consumer goods in response to steel and aluminium tariffs from the White House, which could increase the cost of consumer goods by £200m per year in the UK alone.
Raising the stakes in the tit-for-tat exchange of import tariffs threatening to spark a global trade war, the US president tweeted in response to the EU tariffs which came into effect late on Thursday: "If these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!"
Trump's new threat comes after the EU imposed tariffs on a range of US consumer goods in response to steel and aluminium tariffs from the White House, which could increase the cost of consumer goods by £200m per year in the UK alone.
Should Trump carry through the levy, it would have damaging consequences for jobs and economic growth on both sides of the Atlantic. Leaders from American and European car manufacturers have previously said such measures would lead to net job losses in the US.
The US is the biggest market for EU car exports, accounting for 25% of the €48bn (£42bn) total in 2016, when Germany accounted for just over half of all EU car exports and the UK had the second biggest share, at 13%.
The US opened a new front in the trade war on Friday, telling the World Trade Organisation that appeals rulings in trade disputes could be vetoed if they took longer than the allowed 90 days.
The statement by the US ambassador, Dennis Shea, threatened to erode a key element of trade enforcement at the 23-year-old WTO: binding dispute settlement, which is widely seen as a major bulwark against protectionism.
The tariffs from Brussels imposed on consumer goods - designed to target producers in Republican states where Trump draws much of his support - were introduced from 11pm (BST) on Thursday on US goods worth up to €2.8bn (£2.5bn).
The White House had refused to exempt its traditional allies from worldwide tariffs on steel and aluminium, which Trump argues are necessary to protect US jobs and industry. The president is also threatening China with tariffs worth up to $200bn over alleged "unfair" trading practices.
The EU trade commissioner, Cecilia Malmström, said this week the 28-nation bloc was left with no other choice but to impose tariffs of its own after the "unilateral and unjustified decision of the US".
Brussels drew up the list of products in March when Trump first floated the idea of 25% tariffs on steel and 10% on aluminium.
Although American goods already in the UK will not increase in price, shipments leaving the US for Europe from Friday onwards will be charged the tariffs.
Customs agents across the EU internal market of 500 million people will impose the duty, hiking prices on US-made products in supermarkets and across factory floors.
The EU tax on imported goods in the UK will be collected by HM Revenue & Customs, with some of those duties staying within the country, but the cost for importers, such as wholesale firms and supermarkets, will rise and is likely to be passed on to consumers.
Richard Lim, the chief executive of the consultancy Retail Economics, estimated the tariffs could add £200m to the cost of consumer goods in Britain. In 2017, consumers in the UK spent about £406bn on retail purchases.
"Though the immediate effects on UK retailers might look relatively modest, it is worth paying close attention to this dispute because it's future course is unpredictable, fast moving and could quickly escalate to engulf other, seemingly unrelated areas of trade," he said.
Most economists say the consequence of higher international import tariffs will drive up costs for consumers, offsetting much of the benefit of protecting domestic industries for the country imposing them.
Analysts at the Oxford Economics consultancy said the consequences for the European economy could be contained in the short term, as the affected imports only account for about 1% of all goods coming into the EU from the US, although it warned tariffs on cars would have a greater negative impact. The EU will impose an additional €3.6bn of tariffs if the dispute is still active in three years' time.
European consumers would be able to find alternatives, said the European commission vice-president for trade, Jyrki Katainen. "If we chose products like Harley-Davidson, peanut butter and bourbon, it's because there are alternatives on the market. We don't want to do anything that would harm consumers," he said. "What's more, these products will have a strong symbolic political impact."
What US products will be hit by the tariffs?
- Motorcycles (eg Harley-Davidson)
- Peanut butter
- Orange juice
- Cranberries
- Kidney beans
- Sweetcorn
- Rice
- Jeans (eg Levi's)
- Cigars, cigarettes and tobacco
- Bourbon whiskey
- Makeup (eg MAC, Estée Lauder, Clinique)
- Grilling appliances
- Yachts (eg Sea Ray cruisers)
- Playing cards
- Bed linen
- Knives and forks
- Sinks
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