EU offers Trump tit-for-tat car tariff cuts

The EU has reverted to offering the US tit-for-tat tariff reductions on cars, with negotiators abandoning the idea of a complex “netting mechanism” first proposed by German carmakers, Report informs via The Financial Times.

Under the latest proposal from EU negotiators, the bloc would drop its 10 per cent duties on US car exports if the Trump administration reduces its own levies on the sector below 20 per cent.

The move is the latest attempt by Brussels to address the single biggest stumbling block to an EU-US framework deal to stabilise the transatlantic trading relationship after President Donald Trump’s tariff assault.

Trump imposed 25 per cent tariffs on foreign-made vehicles and parts in March, then proposed “reciprocal” tariffs on almost all trade.

These reciprocal duties, which are not in addition to sectoral tariffs, will increase from 10 to 30 per cent on the EU unless the two sides reach a deal by August 1.

Two people familiar with the talks said the US lowering its auto tariffs to a total of 17.5 per cent was being actively considered if the EU went to zero. The European Commission, which oversees the EU’s trade policy, is also seeking lower tariff quotas for some vehicle types.

The change in approach comes after weeks of torturous talks led by the German car industry, which have also called for a “netting mechanism” that would allow manufacturers to offset import tariffs if they are also exporting vehicles from the US.

The negotiations have sparked tensions between Germany and other EU countries after German Chancellor Friedrich Merz pushed for a deal that would shield the country’s industry from Trump tariffs.

Several people close to the negotiations said talks in recent weeks between the EU and the US have focused on some form of export credits to be applied to European carmakers that manufacture in America.

German carmakers — BMW, Mercedes-Benz, and Volkswagen — as well as Swedish group Volvo Cars had earlier pushed for a mechanism that would allow them to import a vehicle to the US tariff-free for each vehicle they export out of America.

But that idea has now been replaced by a proposal to offer a credit based on the US content of a company’s exports from the US that can then be applied to the content that it is importing.

Even if tariffs were lowered to below 20 per cent, Håkan Samuelsson, chief executive of Swedish carmaker Volvo Cars, said the company would not be able to manage without export credits.

“It is Germany and Sweden who are big exporters of cars to the US,” Samuelsson said in an interview. “No other country in Europe does this so we are a bit alone in the EU.”

BMW chief executive Oliver Zipse added: “In our discussions, I think we came a long way to make it clear: if you endanger that [export] model . . . the US will lose.”

The FT wrote last week that several other member states with car producers that do not have US plants had criticised the proposed scheme. They fear their industry would lose out to German rivals with lower tariffs.

Even the German government has softened on the plan.

“The offset model was run through some simulations and they realised it wasn’t great for all of them,” said one European official briefed on the talks. “And Trump wasn’t too keen on it either.”

Two officials said he wanted something simple to announce and zero tariffs fitted the bill better than a complicated offset scheme.

Barriers would remain to US car exports. Safety standards are different, while tax levels are punitive on the big engined cars the US automakers specialise in.

The EU is open to accrediting US labs to test cars for export domestically, but they would still have to meet the same EU-set requirements, people familiar with the situation said.

Other significant issues still remain unresolved in talks. The EU wants an exemption from future sectoral tariffs promised by Trump on pharmaceuticals and semiconductors. It has also rejected a proposed 17 per cent tariff on its agrifoods.