Trump says he will raise tariff on autos from European Union to 25%
U.S.-EU Auto Tariff Dispute Intensifies
By Gram Slattery, David Shepardson and Andrea Shalal
WASHINGTON, May 1 (Reuters) - U.S. President Donald Trump said on Friday he would increase tariffs on cars and trucks from the European Union to 25% next week from the previously agreed 15%, saying the bloc had not complied with its trade deal with Washington.
The move drew sharp rebukes from European politicians and trade groups, with one European economist calling on Brussels and the German government to "finally show some backbone" and impose retaliatory tariffs.
Trump's Announcement and Rationale
"Based on the fact the European Union is not complying with our fully agreed to Trade Deal, next week I will be increasing Tariffs charged to the European Union for Cars and Trucks coming into the United States," Trump wrote in a social media post.
"It is fully understood and agreed that, if they produce Cars and Trucks in U.S.A. Plants, there will be NO TARIFF."
Trump told reporters the higher tariff would force European car makers to move production to the U.S. more quickly.
"We have a trade deal with the European Union. They were not adhering to it. So I raised the tariffs on cars and trucks to 25%, that's billions of dollars coming into the United States, and it forces them to move their factory production much faster," he said at the White House.
European Response
The European Commission swiftly rejected Trump's claim that Brussels was not complying with last summer's trade deal and said it would keep its options open to protect EU interests if Washington breached the terms of the agreement.
Trump fired off the tariff post amid escalating tensions between the U.S. and the EU over the war in Iran and European countries' refusal to send navies to open the Strait of Hormuz. Trump this week threatened to reduce U.S. troop levels in Germany, Italy and Spain, after German Chancellor Friedrich Merz said the U.S. was being "humiliated" by Iran in talks to end the conflict in the Middle East.
The news hit on the May 1 holiday celebrated across Europe, and coincided with the launch of the new EU-Mercosur trade deal, one of a number of pacts Brussels has accelerated over the past year to help offset Trump's tariffs and volatility.
Background: Trade Deal and Implementation Issues
Slow Implementation
The Trump administration last year imposed a 25% tariff on global automotive imports under a national security trade law, but reached a separate deal with the EU in August to lower those duties to a net 15%, inclusive of prior duties.
In exchange, the EU agreed to eliminate duties on U.S. industrial goods, including autos, and accept U.S. safety and emissions standards for vehicles. Those tariffs were part of a broader deal which saw the EU accept a nearly across-the-board 15% U.S. tariff rate and agree to zero out most of its own duties on U.S. goods. The deal was unpopular in Europe, but EU leaders argued it would insulate firms against further hikes.
However, implementation has been slow. EU lawmakers advanced legislation in March to implement the tariff reductions, but the process is not expected to be completed before June, as EU governments and the European Parliament negotiate final texts.
European Lawmakers' Reactions
"President Trump's behavior is unacceptable," Bernd Lange, the chair of the European Parliament's international trade committee, told Reuters after the surprise tariff post.
"This latest move demonstrates just how unreliable the U.S. side is. We have already witnessed these arbitrary attacks from the U.S. in the case of Greenland; this is no way to treat close partners. Now we can only respond with the utmost clarity and firmness, drawing on the strength of our position," Lange said.
The president of Germany's VDA auto association urged the two sides to move swiftly to resolve the situation, warning that the higher tariff would drive up costs sharply.
"The German government and the European Commission must now finally show some backbone and stand up to Trump. Only that can prevent a continuing escalation," agreed Marcel Fratzscher, president of the DIW economic institute, calling for retaliatory tariffs and taxation of U.S. tech companies.
A Trump administration official, asked to explain Trump's move, said: "The EU has not complied with the autos deal after eight months."
Market Impact and Industry Response
Automakers' Shares Decline
Kelly Ann Shaw, a top trade adviser to Trump during his first term who is now a partner with law firm Akin Gump Strauss Hauer & Feld, said the rupture was inevitable given the EU's slow progress in implementing last summer's trade deal.
"The U.S. effectively implemented the Turnberry agreement as of August, and we're nearly a year later and we have yet to see the EU cut a single tariff," she said.
Shaw said the action was limited in scope, and there was still time for the EU to enact its part of the deal and avert the higher U.S. tariff rates.
Shares of Ford Motor fell as much as 2.4% on the New York Stock Exchange after Trump's announcement, while those of Stellantis fell as much as 3.3% on the NYSE. General Motors shares dropped 1.5%.
Automakers' Production Strategies
Automakers have privately told Trump they will hold off on big shifts in production until they get more clarity on the future of the U.S.-Mexico-Canada trade agreement, which is facing a major review.
European automakers already have significant operations in the U.S., and expansions are planned. Mercedes-Benz in March said it would invest $4 billion in an Alabama plant through 2030 and planned total investment of $7 billion in U.S. operations.
The company, which is shifting production of its GLC SUV from Germany to Alabama, reported in February that its group operating profit was more than halved to 5.8 billion euros ($6.9 billion) in part due to 1 billion euros in tariff costs.
Ryan Majerus, a former senior U.S. Commerce Department official who is now a partner with law firm King & Spal
