- The US president postpones by 180 days the decision on tariffs on cars and car parts, which could reach 25%.
- During that period the US will negotiate with the EU and Japan, while Canada, Mexico and South Korea are left out because of their agreements.
- It is a breather, not a solution: the industry and its suppliers should plan with two scenarios.
On 17 May 2019, the President of the United States signed a proclamation postponing by 180 days the decision on tariffs on imported cars and car parts, which the Department of Commerce had investigated under section 232, the national security provision. The legal deadline to decide expired on 18 May. The additional tariffs on the table could reach 25%.
The proclamation recognises that the current volume of imports poses a threat to national security, but instructs the trade representative to negotiate with the European Union and Japan agreements that address that risk. Canada, Mexico and South Korea would not be affected, because they have already reached agreements with the US administration.
Why it matters to Europe
The auto industry is one of Europe’s major industrial sectors, with a chain running from vehicle manufacturers to thousands of component companies, and a large part of its output is exported. A 25% tariff on imported cars would have been a notable blow for several manufacturers, above all German ones, and for the suppliers that serve them in other countries.
Spain is one of Europe’s major car producers and Catalonia, with Martorell and the surrounding supplier industry, is an important piece of that ecosystem. Direct sales to the United States weigh less than in other countries, but indirect exposure, through components sent to factories that later export, exists and is worth assessing.
What is being negotiated now
During the 180 days, the US administration will seek agreements with the EU and Japan, and will talk of quotas, export limits or investment commitments. For the European Union, the challenge is that any trade negotiation with Washington, a process that depends on a mandate from the member states, takes place in a way that does not affect other sectors such as agriculture.
A six-month period gives some room, but also uncertainty: there is no specific date for a resolution, and any final decision will depend on how the negotiation evolves and on the political climate. Companies would do well not to mistake the extension for a renunciation of tariffs, which remain an option for the administration.
What to review
Companies in the sector, and those that supply them, can start by mapping their exposure: what part of turnover goes to the United States, directly or indirectly, through which customers and under which tariff headings. With that information the effect of different scenarios can be estimated, and measures such as adjustments to supply contracts or market diversification assessed.
In contracts with customers and suppliers, it is worth reviewing who bears tariffs, what the price-review clauses and delivery terms say, and whether any force majeure or change-of-circumstances clause applies. This is general information: each company has a different exposure, and the final decision should be analysed with your adviser. While the negotiation lasts, it is prudent to keep up dialogue with customers along the chain, share scenarios and agree how costs would be divided if the tariff were finally applied, because in such an integrated sector the decisions of one link affect all the others. Finally, those who depend on exports to the United States can study whether it makes sense to diversify markets or to produce part of the offer closer to the customer, decisions that take time and are better assessed calmly while the uncertainty lasts.
A postponement buys time, but only for those who use it to prepare.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
