“Auto tariffs would force us to reduce our growth forecast for the euro area.”
Among the key risks for our euro area outlook, the threat of US auto tariffs is of major importance.
The US Commerce Department’s investigation on national security threats posed by auto imports is due to be concluded on 17 February.
Given the complexity of the global auto supply chain, it is very complicated to isolate the effect of a one-off increase in US tariffs on European cars.
Using simple trade, elasticities and investment metrics, we try to gauge what could be the potential impact of auto tariffs on euro area growth.
We find that autos tariffs would reduce our annual euro area GDP growth by at least 0.2-0.3 percentage points. Consequences on the very exposed European car industry (Germany’s and some eastern European countries’ in particular) would be even more significant
As a result, against our baseline (without higher tariffs) for 2019 euro area GDP growth of 1.4%, such a scenario would suppress our growth forecasts to close to 1.0%.
A key question is whether the US administration will also impose tariffs on car parts and what retaliatory measures the EU would take.