Governments from Ottawa to Paris threatened countermeasures yesterday after US President Donald Trump announced a 25% tariff on imported vehicles, escalating a global trade war, shaking stock markets and testing already strained relations with allies.
European Commission President Ursula von der Leyen described the move as "bad for businesses and even worse for consumers."
After the value of German car stocks plummeted yesterday, officials in Europe's largest economy called for a tough response. "The US has chosen a path where everyone loses, because tariffs and isolation harm everyone's prosperity," said German Chancellor Olaf Scholz.
In neighboring France, which hosted a summit on Ukraine yesterday without the US, Finance Minister Eric Lombard called Trump's plan "very bad news" and said the only solution was for the EU to impose its own tariffs.
Britain, which is struggling to grow its economy, is trying to secure an exemption from tariffs but has also threatened to review subsidies it gives to Tesla. Canada on Tuesday froze subsidy payments to the electric car maker.
While politicians threatened countermeasures, the European car industry called for a transatlantic agreement to avoid a tariff spiral that could seriously hit a sector that provides 6% of employment in the region.
"There will be obvious negative consequences for a sector that is already facing major challenges due to the painful transition to electric vehicles, stricter regulations, longer vehicle replacement cycles and higher energy costs," Lindsay James, investment strategist at Quilter, told Reuters.
As stocks fell, Japanese Prime Minister Shigeru Ishiba said Tokyo would "consider all options," while South Korea said it would introduce an emergency response by April.
China has expressed its willingness to cooperate with the EU in the fight against protectionism, calling on the bloc to act together to counter the growing threat of tariffs from the US.
The EU should protect its interests and make a "rational choice" by further turning to China, given the uncertainty created by the new US administration, according to an editorial in the Chinese state-run newspaper Global Times.
Trump sees tariffs as a means to raise budget revenue to offset promised tax cuts and revive the US industrial base, which has long been in decline.
Trump said he could impose even higher tariffs on the EU and Canada if they join forces to retaliate. "If the EU cooperates with Canada to inflict economic harm on the United States, there will be massive tariffs - significantly higher than currently planned, to protect the best friend these two countries have ever had," Trump said.
The new tariffs could increase the price of the average vehicle in the U.S. by several thousand dollars, contradicting Trump's campaign promise to lower consumer prices. Ferrari has announced a price increase of up to 10% for vehicles sold in the U.S., while other automakers have warned they could raise prices. Car dealers have expressed fears of job losses.
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