By William Boston and Bojan Pancevski
BERLIN -- Germany's leading auto makers have thrown their
support behind the abolition of all import tariffs for cars between
the European Union and the U.S. in an effort to find a peaceful
solution to the brewing trade war.
The U.S. ambassador to Germany, Richard Grenell, brought the
proposal for a broader industry trade pact to the Trump
administration on Wednesday, according to people familiar with the
situation.
That would mean scrapping the EU's 10% tax on auto imports from
the U.S. and other countries and the 2.5% duty on auto imports in
the U.S. As a prerequisite, the Europeans want President Donald
Trump's threat of imposing a 25% border tax on European auto
imports off the table.
Over the past few weeks, Mr. Grenell has held closed-door
meetings with the chiefs of all major German automotive companies,
including bilateral meetings with the CEOs of Daimler AG, BMW AG
and Volkswagen AG, which operate plants in the U.S. Overall,
Germany's auto makers and suppliers provide 116,500 jobs in the
U.S., according to the Association of German Automotive
Manufacturers.
During these talks, which the ambassador initiated, the managers
said they would back the scrapping of all import tariffs on
trans-Atlantic trade in automotive products as the keystone of a
broader deal covering industrial goods. The German government is on
board and Mr. Grenell promised to support the idea, according to
U.S. and German officials.
German car makers' efforts face significant hurdles. Berlin has
no power to hammer out trade deals -- a prerogative of the European
Commission, the EU's executive body in Brussels -- and would have
to persuade fellow EU member states, starting with France, to back
a radical free-trade approach many have shown little interest
in.
The car makers' approach is unusual, but German officials said
any approach could be worthwhile to try to sway a president whose
actions have left his allies perplexed at best.
"Germany has the right approach to resolving this trade
disagreement among friends," said U.S. Commerce Secretary Wilbur
Ross. "If the EU were to reduce its 10% tariff on U.S. cars and
trucks, that would be a positive first step toward trade that was
more fair and reciprocal."
One catch is that the Europeans also want a 25% U.S. tax on
imports of light trucks -- pickup trucks, sport-utility vehicles,
and big vans -- scrapped. Abolishing this relic of the Johnson
administration could alienate U.S. auto workers, a core
constituency for Mr. Trump in the midterms this fall.
Mr. Ross didn't comment on whether the U.S. would be willing to
cut tariffs on trucks.
Government officials in Berlin are cautious about the car
makers' initiative. While they endorse the idea, they say the
government already approached the Trump administration with similar
proposals weeks ago without eliciting much interest. They also say
no talks are currently taking place on trade between Europe and the
U.S. as the EU finalizes its response to Mr. Trump's steel and
aluminum tariffs.
Mr. Grenell, a rare U.S. ambassador seen as having a direct line
to the president, told The Wall Street Journal that hurting German
car makers wouldn't be in the interest of the U.S.
"It is important to stay focused on American jobs, and the
German auto industry employs tens of thousands of U.S. workers,"
Mr. Grenell said.
Daimler confirmed that a meeting with Mr. Grenell took place,
but declined to comment. Volkswagen also declined to comment.
A spokesman for BMW said in the company is "convinced that free
trade, with minimal or no barriers, benefits all concerned and is
an important element in promoting national and international
prosperity and well-being. Clearly this also applies to
trans-Atlantic trade."
A European Commission spokesman didn't comment directly on the
German car makers' offer, but underlined it has a united stance
against the aluminum and steel tariffs.
"We made the case for dialogue with the U.S. to address any
bilateral trade grievances," the commission said. "We also made
clear that this could only happen once the EU was granted a
permanent exemption on the tariffs on steel and aluminum
products."
Getting France on board may be almost as difficult as convincing
Mr. Trump to play ball.
Unlike Germany, French car makers Renault SA and Peugeot SA
don't export cars to the U.S., and so any free trade deal would be
of little value to them. In fact, a deal could open the French
market to unwanted competition.
"We are absolutely in favor of reducing tariffs in certain areas
like car imports, but we have to support a common EU position.
Paris is still holding a hard line on this," said a German official
familiar with the negotiations.
A French official said Paris was unaware of the proposal, and it
wasn't discussed during a recent summit between French President
Emmanuel Macron and German Chancellor Angela Merkel in Meseberg,
Germany.
Mr. Trump's repeated threats to raise tariffs on imported cars
could put $54 billion in annual revenue from European passenger car
exports to the U.S. at risk, according to data from the European
statistics office. Germany's auto association says German auto
makers and suppliers export EUR29.4 billion ($34 billion) worth of
goods to the U.S. each year, while Germany imports just EUR6.5
billion ($7.5 billion) worth of American goods.
For the U.S., that is a huge trade imbalance that Mr. Trump
wants to eradicate. The Germans say that figure is skewed and the
trend is already moving toward more investment in the U.S. German
auto production in the U.S. has quadrupled since 2009. And the U.S.
doesn't export many cars to Germany because auto makers Ford Motor
Co. and General Motors Corp. have instead built them in Europe.
Daimler and BMW each generated around 10% of their global unit
sales in the first five months of the year through exports to the
U.S., according to Wall Street Journal calculations.
"If these tariffs are imposed my BMW, Audi and Porsche
dealerships will become warehouses and cease to exist. The math
just doesn't work," says Steve Kalafer, a founding chairman of the
New Jersey-based dealer network Flemington Car & Truck Country
Family of Brands.
The Commerce Department is preparing a study to determine if
tariffs could be imposed on national security grounds.
Stormy-Annika Mildner, a foreign trade expert at the Federation of
German Industries, said German industry groups would submit comment
to Commerce this week to object to the notion that Germany poses a
security threat.
She said German auto companies support thousands of jobs in the
U.S., and that exports from German auto factories contribute
positively to the U.S. trade balance, and German companies have
been active in training American workers.
"Any deal has to be reciprocal," Ms. Mildner said. "Europe
lowering car tariffs on a unilateral basis would not be a clever
thing to do."
During the auto summit meeting, Mr. Grenell implored the German
auto executives to "deliver the numbers" that prove Germany's
contribution to the U.S. economy.
"We have to keep talking to the U.S.," said a German industry
official who attended the meeting between Mr. Grenell and auto
industry chiefs in Berlin on June 7. "Grenell said he wants to help
us. Whether he really can is uncertain, but it's a positive
sign."
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
June 20, 2018 14:20 ET (18:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.