An EU trade deal the U.S. could refuse

WASHINGTON — Anxious to avoid an all-out automotive trade war with the U.S., European Union officials and German automakers are ready to deal. And they have a straightforward proposal, too: Drop vehicle tariffs on both sides of the Atlantic.

Yet as nice and evenhanded as it sounds, it may not fly for U.S. negotiators.

Although a frequent talking point of President Donald Trump is the disparity between the EU's 10 percent tariff on imported autos and the 2.5 percent duty European cars pay to enter the U.S., American negotiators are more interested in blocking imports than boosting exports.

What's more, such an agreement probably wouldn't do much to bolster shipments of American-designed and -branded vehicles in Europe, where U.S. cars and trucks never have been popular. On the other hand, German-branded vehicles produced at transplants in the U.S. would come out nicely under the arrangement.

Experts say the Trump team is motivated by trade deficits and is more interested in getting automakers to return production to the U.S. — showing working-class supporters that the administration is creating jobs, even if critics says tariffs will end up costing more jobs overall.

"We already have zero tariffs between the U.S., Canada and Mexico on automobiles," said Chad Bown, a senior fellow at the Peterson Institute for International Economics. And the Trump administration was "not happy with fully reciprocal tariffs under NAFTA. They wanted something else. So how, if we were to do this with Europe, would that satisfy them?"

An even bigger issue, perhaps, is that lower tariffs won't do much to help U.S. brands gain market share in Europe, since American cars aren't designed for European tastes or infrastructure. Streets are narrower; garage spaces are tighter and with lower clearances. Also, there are fewer places where people need a car because public transportation is ubiquitous. And there are lingering negative perceptions about quality and drivability of U.S.-designed models.

Also, in Europe, vehicles are often fleet purchases by corporations providing perks to employees.

"So, for Cadillac and Lincoln to gain traction in a lot of the European markets, they'd have to start appealing to those corporate practices, which tend to favor the domestic industry," said Peter Nagle, senior automotive economist for North America at IHS Markit. "It's hard to see a German company purchasing fleet vehicles from a non-German company."

Japan doesn't impose auto tariffs, "but the U.S. has never been able to penetrate that market because we build different vehicles than Japanese consumers prefer, and there is a cultural loyalty to Japanese brands," he added.

If tariffs are eliminated, German transplants in the U.S. would be big winners. Not only would their imports from Europe be more price-competitive, they would save thousands of dollars on vehicles assembled at U.S. plants for sale in Europe.

BMW and Mercedes "alone represent some 60 percent of our exports to Europe" because the U.S. is the sole source for their global utility vehicles, Nagle said.

The top U.S.-made sellers in Europe are the BMW X3 and X5, built in Spartanburg, S.C., followed by the Mercedes-Benz GLE, manufactured near Tuscaloosa, Ala. The Ford Mustang tops American brand vehicles in Europe, with about 12,000 sold last year, according to LMC Automotive.

"The appeal of some American vehicles is more towards what tends to be viewed as classic American culture, so those off-road vehicles, [like] Jeep, and those performance cars, the Camaros and Mustangs of the world," Nagle said.

"But in terms of mass market, mainstream brands, there's not a lot of cultural cachet, and there does seem to be some historic, country-based loyalty."

Kristin Dziczek, lead economist at the Center for Automotive Research, said the U.S. missed an opportunity to eliminate tariffs on EU products after the recession last decade, when companies were looking to invest in more North American capacity.

"But that capacity has all gone to Mexico," in part because it has free trade with more than half the global market for new vehicles, while the U.S. only reaches 28 percent of the market, including its home base, she said.