Leverage – EU Pledges Increased U.S. Investment in Effort to Avoid U.S. Auto Tariffs…

Funny stuff amid headlines discussing the likelihood of President Trump postponing a 25% tariff on European autos.  What the pundits are missing is how President Trump has positioned a myriad of trade dynamics that make EU action unavoidable.   This is the fun stuff, so let’s enjoy the details.

The current headlines surround President Trump “postponing” a 25% tariff on EU automobiles as an outcome of the major EU manufacturers (mostly Germany) promising increased investment in their U.S. operations.  By itself this would be considered a win for President Trump, but that’s not the whole picture, not even close.

What the more broad trade and manufacturing dynamic includes will explain what EU economists are only just now starting to realize.  Yes, the major European auto-makers will put more investment into the United States (thereby lessening the EU industrial economy); however, the auto decision is not because they are presenting a magnanimous benefit of sorts, but rather it is a foregone conclusion; an unavoidable reality due to a previous trade agreement construct.

Within the USMCA agreement President Trump negotiated a win-win-win for Mexico, Canada and the U.S. through a requirement that 75 percent of North American auto content must originate from manufacturing within North America.  Failure to reach that threshold means the auto company will be subject to a 25 percent tariff to bring the product to the U.S. market.

Example: Seeking to exploit the previous NAFTA loophole BMW recently opened a $2 billion assembly plant in Mexico.  However, as soon as the USMCA was announced; and once they saw the loophole closure; BMW also had to announce they would open up a new engine and transmission manufacturing/production facility in the United States.

The USMCA deal meant BMW could not bring German transmissions and engines into Mexico for assembly.  The origination requirements changed the dynamic of their production plan; and as a consequence their investment plan.

Keep in mind the steel and aluminum tariffs already exist.  Most trade partners with the U.S. are operating under exemptions, waivers, provided by President Trump and his trade team.  Those waivers can be withdrawn at any time.

The only time the Steel and Aluminum tariffs are gone permanently, is when the nation signs into an official trade agreement with the United States. [Keep this nugget in mind]  All U.S. trade agreements also forbid the partner country from participating in transnational shipping of steel and aluminum.

Additionally, President Trump instructed USTR Lighthizer and Commerce Secretary Ross to use the leverage created within the USMCA (auto sector), in combination with the Steel and Aluminum tariffs, as pressure points -leverage- in all trade agreements with Korea, Japan, China and the EU.  [Auto sector 232 tariffs]

Does it work?

Well, two examples: (1) South Korea opened up the KORUS deal to renegotiation specifically to avoid those tariffs (think Hyundai and Kia).  The new KORUS deal positioned greater benefit to the US.  (2) Japan opened up their market to U.S. agriculture exports in large part to avoid those tariffs (think Nissan, Toyota, Mazda etc.); and that became the framework for the recently signed U.S-Japan trade agreement.

So yes, it works.

That same leverage principle is at play with the EU.  Germany must avoid U.S. auto tariffs at all costs.  Additionally, Germany and the EU industrial companies, writ large, want to keep their waivers from Steel and Aluminum tariffs. However, Germany cannot avoid the tariff structure within the USMCA. President Trump has the EU over a barrel.

As an outcome of the USMCA, Germany was already going to have to manufacture content in the U.S. in order to avoid auto tariffs.  Germany is not going to be able to bring German parts into the U.S. and assemble in U.S. made vehicles. They are going to have to produce more auto parts inside the U.S.   The issue is a matter of timing.

As soon as the USMCA is ratified, Germany is going to have to make their U.S. investment.  However, with the USMCA not yet ratified, President Trump has deployed the 25% auto tariff threat directly.  This forces the EU to make their already unavoidable auto investment in U.S. manufacturing faster than they would like.

So there’s some nuggets of truth within the New York Times article:

The president has not yet announced a decision, and there is no guarantee that dangling new investments will stop him from imposing levies. Mr. Trump has repeatedly criticized Europe for flooding the American market with cars while limiting imports of United States vehicles.

[…]  Some analysts say Mr. Trump and his advisers are more interested in the leverage the specter of auto tariffs creates than in actually imposing the levies. They have been willing to threaten tariffs to extract concessions in negotiations with Japan, South Korea and Europe.

Mr. Trump could decide to try to preserve his leverage by extending the deadline to make a decision. That would be frustrating for European officials, who say the trade war’s uncertainty has been dragging down economic growth. Germany, whose economy depends on car making, is on the brink of recession. (read more)

This entry was posted in Auto Sector, Big Government, China, Donald Trump, Economy, European Union, Japan, media bias, NAFTA, President Trump, Trade Deal, Uncategorized, US dept of agriculture, US Treasury, USA, USMCA. Bookmark the permalink.

78 Responses to Leverage – EU Pledges Increased U.S. Investment in Effort to Avoid U.S. Auto Tariffs…

  1. vikingmom says:

    Sounds like Harley Davidson sold out the US of A just a bit too soon! And all those customers they lost by moving parts of their operations oversees will probably NOT be coming back to them anytime soon!!

    Liked by 18 people

    • Robert Smith says:

      Aren’t their sales dying with the aging of the baby boomer set?

      Their bikes are pretty expensive to entice young buyers who would actually ride them.

      Liked by 5 people

      • GB Bari says:

        Harley 2019 offers bikes anywhere from $7,599 up to $50,000+, depending on how dressed-out you want your ride… The extensive line features lighter, sportier models right up through the fully dressed-out road hawgs and cruising trikes.

        So there’s a wide style and price range to fit anyone’s pocketbook.

        Liked by 1 person

        • dallavise says:

          I believe Harley’s decision was to open up additional markets in Europe. I don’t think they intend to make bikes and ship them back here. Their mistake was throwing PDJT under the bus by pretending it was because of tariffs. I don’t begrudge them for moving their production intended for overseas to go overseas. That’s called being competitive. I get that it may hurt some US employees, but let’s be pragmatic. Now, if a US company moved product manufacturing out of the US which was intended to come back in, I think that is a different story.

          Liked by 2 people

          • cdor1 says:

            “Good for the goose…” I agree. If we want products sold in our country to be made, predominantly, in our country, then a USA manufacturer that wants to sell product in another country would certainly be proper by opening manufacturing in that foreign country. No harm, no foul. just basic fairness, which is what we have been attempting to achieve in trade.

            Liked by 1 person

          • GB Bari says:

            I never understood their decision especially the timing of the announcement, unless they are managed by a Trump-hater. It just seems unlikely that the majority of that company’s management would be opposed to an America-first President.

            But if the financial argument took into account all of the tax changes passed on Dec 2017, all of the regulatory relief that PDJT has brought about via EO’s, all of the tariffs currently in effect, and yet still clearly indicates that bikes for foreign sales are best manufactured off shore, then so be it.

            I just wonder if, given the current financial climate, their decision still looks as good to them today as it did when they announced it?


    • mopar2016 says:

      Good call mom, who wants a Harley that’s built in India, Brazil, or Thailand?
      I know I don’t.

      Liked by 8 people

    • Kokanee says:

      Indian is picking up the slack.

      Liked by 5 people

    • billmonnie says:

      Wasn’t it in the 1970’s that Harley was taken over by the Italians or were the bikes built in Italy? HD almost went under because of the poor quality of their bikes. Robert Smith has a valid point about the aging boomers, but there is a certain mystic about the HD machine. Having given up my HDs after 25 years of riding, I do miss the “Freedom of the Road,” but at age 76 years I felt it was more important to take care of my 4 year old son since I am a single parent with sole custody.

      Liked by 1 person

    • Cliff Indiana says:

      I thought he’s India plant was for India’s market, not to export to us. A way to get around India’s 100 percent tariff on us imprted he bikes.

      Liked by 2 people

  2. cantcforest says:

    God, I hate the Rinos and leftists sedition in trying to thwart our president.

    Liked by 13 people

    • Robert Smith says:

      Imagine if they were actually helping Trump?

      Liked by 15 people

      • Betty says:

        They haven’t got the brains to help President Trump. In both senses of that sentence. They haven’t got the brains to figure out helping President Trump with anything would be the best career move of their lives, about the only way they could contribute in a meeting with these giants is to bring the donuts.

        Liked by 13 people

    • G. Alistar says:

      Only problem I have is I’m not tired if winning….yet. Still, like the winning! Perhaps by 2024 I’ll get tired. This is yet again, simply great economic new! KAG.

      Liked by 6 people

      • Bruce says:

        I’ll be tired of winning when I quit breathing. Can we have a reliable Pence in 2024, or do we go straight to Don Jr.? We’ll need some interim until Barron is 35.

        Liked by 2 people

  3. StuckInBlue says:

    I love it when a plan comes together.

    Liked by 3 people

  4. deepdivemaga says:

    I’m going to miss this man after 2024

    Liked by 12 people

  5. Drogers says:

    Still not tired of winning!


    Liked by 5 people

  6. Phil aka Felipe says:

    President Trump’s ‘Magic Wand’ seems to be working pretty good, don’t you think BHO?

    Liked by 16 people

  7. Green Bucket says:

    Do you ever imagine how great it would be if President Trump had a Congress and Senate that wanted to help him and do good things for America and Americans? I do..

    It’s sad that all the Democrats and RINO’s work so hard against him. Save the USA vote them out.

    Liked by 11 people

  8. PDJT with that Schiff eating grin shaking hands with Cankles jr. “Art of the Deal.”

    I’ll believe the EU pledge when I see it.

    Liked by 1 person

  9. C says:

    Someone needs to create an interactive map of all the factories/jobs that have been brought back to the USA. It should be able to show “New” or “Brought back” in color coding. Would be a great perspective provider for most Americans.

    Liked by 6 people

  10. Perot Conservative says:

    Sign USMCA.

    I would love to read Sundance’s take someday on our manufacturing “recession”.

    – GM strike a small item
    – Boeing problems a big item
    – European economic flatline

    What else?

    FWIW, I don’t think we have even one steel plant on the west coast. (A defunct plant in SoCal was used in the Terminator movie.) I think West Texas has a steel mill? And most all of the recycled metal, paper, plastics are shipped to Asia.

    Liked by 1 person

  11. Shyster says:

    Tails we win, heads you loose! That’s what winning for the American people is about. The best part is that when they eat the shit sandwich they have been served, they’re all doing it with a not so sincere but noticeably frozen smile on their faces.

    Liked by 3 people

  12. Skidroe says:

    After 2024 Trump and Bannon will start and run the largest most successful TV and social media company in the world. ABC, FOX, Twitter, and all the others will dry up like an old wash rag. Any bets?

    Liked by 8 people

    • JC says:

      Interesting idea, Skidroe. Think of the dynamics of former President Trump (and family) setting the media on its ear and supporting his KAG successor 100%. Perhaps the existing dishonest and anti-American media will have completely failed by then, and/or are purchased by the Trumps. Tectonic shift to truth-telling would be mind-boggling, to say the least.

      The Dems and their Media Thugs are so foolishly focused on destroying our President and the American people, they fail to see they are the architects of their own demise.

      Liked by 10 people

      • Dutchman says:

        This has been my thought, as well.
        Trump media, or Trump TV. Certainly, he is not going to go quiet, in retirement.
        And, we will continue to hear from his family.
        Still, he is the leader of a MOVEMENT, and he is continueing to build this movement. The movement will hopefully be large enough, and strong enough to continue.

        And if you have a movement, new leaders will emerge. So, a movement without a leader, will find a leader.

        But, a leader without a movement, is just a guy, taking a,walk.

        Liked by 2 people

  13. jmarshs says:

    The supreme irony of all that Trump is doing with regards to Tariffs is that if foreign Countries actually embraced Free Market Economics, none of this would be necessary…..

    Liked by 7 people

  14. Paul B. says:

    Clearly, we have a president who knows what he’s doing – for a change.

    Liked by 8 people

  15. mtk says:

    Kinda makes one wonder if much about the ‘witch hunt’ is cover for the need political optics as the USA rams through a tough trade reset with trading partners.

    One of the hall marks of US foreign policy has always been a kind ‘lock step’ progression/continence. In the case of playing trade hard ball, the seemingly governing reality has always been a fear of not alienating, the applied lobbyist soft touch. Which over time generated bent over backwards, take it up ‘you know what’ outcomes.

    Therefore if there has been some kind of tack agreement within the ‘capital class interest’, to reassert strength someone got to be the ‘lighting rod’, ‘bad boy’.

    If this is the case .. then much about the American domestic landscape is about playing a ‘good cop/bad cop’ routine, while this policy shift is enacted?

    Liked by 3 people

  16. nuwildcat1977 says:

    What a contrast. While Obama kept busy filling out NCAA brackets and bringing rap thugs to the White House, President Trump negotiates multi dimensional trade deals with countries around the world (among other accomplishments). We are truly blessed to have this man at the helm. For any thinking voter, the decision next November will be an easy one. Trump 2020!

    Liked by 2 people

  17. railer says:

    The globalists have been engaging in a wealth transfer, from the USA to the rest of the world. Trump’s attempting to reverse that transfer. Not hard to see why they’re resisting him. As has been mentioned frequently here, there are trillions at stake.

    Once the Schiff nonsense is dispensed with and Trump is reelected, we may see significant movement out of Congress. The coming election will be heavy on trade and Congress’ inaction.

    Liked by 2 people

  18. Nathan Hale says:

    “Nothing last forever beneath the earth and sky.”

    What Trump has done and will do has been nothing short of Biblical, but…….really?

    How can it last? When he is gone who will take his place? I don’t see a man or woman standing in his shadow who could carry his shoes, much less wear them. The massive corruption in our government is just a reflection of our society today. We murder our unborn children on a scale that would make Hitler proud. And all the while our judges smile and are pleased to allow it to continue.

    And look at our public schools, are you confident that the next generation is being formed to continue what Trump started? Really? They can’t even be seen in school praying.

    I believe Trump has been divinely placed in the President’s office as our last shot at redemption. And I intent to continue to support Trump and enjoy it while it last, and as long as I last, but I’m not seeing past Trump’s time in office. Why? Because I just don’t see the change in us. Enough of us anyway.

    Christ will come again, but when He comes it won’t be because He is pleased with what we have done with the gifts we have been given.

    Liked by 1 person

  19. Skidroe says:

    Nathan, don’t worry. Ivanka Will be our 1st women President.


  20. rioosodog says:

    Sounds like a Quid pro Quo to me!


  21. Nathan Hale says:

    I believe…..
    It’s not about “who” follows Trump, or fills the shoes of Nancy or Mitch.

    It’s all about who follows Christ and his teachings. If you are a Jew, it’s all about following the 10 Commandments.

    For most of my adult life, I believed if “we” only elected Republicans to replace those dreadful Democrats all would be well in our nation. It was a pipe dream. Corruption is the rule of the land.

    It’s all about practicing our faith. Is there 50 men and women in Congress who practice their faith? If you believe there are any, can you name them and post their names here?

    I hope that those who disagree with me will “out” our members in Congress who truly practice their faith- here is a great place to begin a wall of names of the faithful.

    Liked by 1 person

  22. Nathan Hale says:

    I believe…..
    It’s not about “who” follows Trump, or fills the shoes of Nancy or Mitch.

    It’s all about who follows Christ and his teachings. If you are a Jew, it’s all about following the 10 Commandments.

    For most of my adult life, I believed if “we” only elected Republicans to replace those dreadful Democrats all would be well in our nation. It was a pipe dream. Corruption is the rule of the land.

    It’s all about practicing our faith. Is there 50 men and women in Congress who practice their faith? If you believe there are any, can you name them and post their names here?

    I hope that those who disagree with me will “out” our members in Congress who truly practice their faith- here is a great place to begin a wall of names of the faithful.


  23. Everett Miller says:

    VSGDTJ is really an amazing man–additionally, don’t forget his overall goal is TRULY FREE MARKETS w/o any tariffs or trade manipulations. This FEE MARKET would work to the benefit of all–world-wide–just as it does here in the USA. As that overall world-wide market grows, we, America First would rise additionally still on the top of the growing ‘heap’.
    Thank God for Donald J Trump.

    Liked by 2 people

  24. Humpty Dance says:

    I have worked 16 years in the German automotive industry, for both the OEMs and suppliers. The plants they built in the USA transformed the economies of the cities they are in. The Greenville/Spartanburg area was a desolate post-textile wasteland in the 1990s when BMW announced it would come. Now it is a thriving metropolis, home to the largest auto production plant in the USA (bar-none) one of the best places in the country to live in my opinion. Chattanooga was also in a really bad economic situation before VW showed up. Now the entire industrial base is humming, the old buildings downtown are being bought up, unemployment is below 2%. Mercedes did the same to Tuscaloosa (technically Vance). Hundai and Kai brought thousands of jobs to L.A (Lower Alabama) and Georgia. However the Germans finally got too greedy…….they forced their fellow German suppliers to go to Mexicio for more and more types of production (what advantage could there be for putting automated injection molding in Mexico???) Then they got just plain gaudy and Audi built a plant in Mexico to make the Q5 SUV, and then shortly thereafter BMW announced that they would build a plant in Mexcio. That was one bridge too far. You can’t go and build $ 55K luxury cars in Mexico with rock-bottom wages and then expect to export 99% of them into the USA. No sir, we are not going to stand for that. So what Trump is doing with the USMCA is causing the German automakers some grief, but believe it or not in the long run they will thank him. Because in the long run those companies will be better off ( read:more profitable) if they produce the engines and transmissions here. Imagine the economic impact to the South if each one of these companies ( BMW, VW, Mercedes) decide to build a motor production facility here and are also required to use US Steel and Aluminum for those motors. We could easily be talking 18K jobs just directly at the OEM plants, and then for each of those jobs, you can add another 4 jobs in the supporting supplier and logistical base.
    Finally a president who understands that a nation of 300 Million people must have its own industrial base. It cannot allow all of its manufacturing to leave the country and be gutted.

    Liked by 1 person

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