Trump pushes trade war into overdrive

Washington/Tokyo/Berlin — Governments from Ottawa to Paris threatened retaliation on Thursday after US President Donald Trump unveiled a 25% tariff on imported vehicles, expanding a global trade war, hammering stocks and testing already strained ties with allies.

The new levies on cars and light trucks will take effect on April 3, the day after Trump plans to announce reciprocal tariffs aimed at the countries he says are responsible for the bulk of the US trade deficit.

The US imported $474bn worth of automotive products in 2024, including passenger cars worth $220bn. Mexico, Japan, South Korea, Canada and Germany, all close US allies, were the biggest suppliers.

The tariffs are a sucker punch for Europe at a time when relations with Washington have plummeted over issues such as the war in Ukraine and the upending of a decades-old transatlantic alliance that places the US as the ultimate guarantor of European security.

European Commission President Ursula von der Leyen described the move as “bad for businesses, worse for consumers”, while Canadian Prime Minister Mark Carney called the tariffs a “direct attack” and said retaliatory measures were being considered.

“We will defend our workers, we will defend our companies, we will defend our country, and we will defend it together,” Carney said in Ottawa.

With billions of euros wiped from German carmakers’ shares on Thursday morning, German economy minister Robert Habeck called for a tough stance.

“What counts now is to have a firm response to these tariffs from the EU. It needs to be clear that we will not take this lying down,” he said in a statement, adding that the EU needs to seek a negotiated solution.

Underscoring the jitters in Europe’s biggest economy, where carmakers are buckling under high costs and tough foreign competition, the head of Germany’s car industry association said the tariffs are a “fatal signal” for global trade.

In neighbouring France, which is hosting a Ukraine summit without the US on Thursday, finance minister Eric Lombard called Trump’s plan “very bad news” and said the only solution was for the EU to raise its tariffs.

Britain, which has struggled to grow its economy, was scrambling to secure an exemption but also threatened to review subsidies given to Elon Musk’s Tesla.

“None of this leads to more jobs or better wages. It leads to sluggish sales, costlier credit, and potential layoffs — exactly what a fragile economy doesn’t need,” said Nigel Green, CEO of global financial advisory deVere Group.

“Tariffs won’t drive carmakers home. They’ll drive prices up, relationships down, and America’s global standing into reverse.”

China’s foreign ministry said the US approach violates World Trade Organisation rules, undermines the multilateral trade system and was “not conducive to solving its own problems”.

Praise and criticism

Automakers such as Toyota and Mazda led declines in stocks in Japan, which relies on vehicles for more than a quarter of its exports to the US. Shares of automakers in South Korea and India also slid.

Shares of US automakers, which are highly integrated with plants and suppliers in Canada and Mexico, were lower in pre-market trading.

Japanese Prime Minister Shigeru Ishiba said Tokyo will put “all options on the table” and South Korea said it would put in place an emergency response for its hard-hit auto industry by April.

Brazil’s President Luiz Inacio Lula da Silva vowed to lodge a complaint with the World Trade Organisation over a levy on Brazilian steel.

Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining US industrial base.

Many trade experts, however, expect prices to initially rise and demand to fall, hurting a global auto industry that is already reeling from uncertainty caused by Trump’s rapid-fire tariff threats and occasional reversals.

Early on Thursday, Trump said he might hit the EU and Canada with bigger tariffs if they teamed up to retaliate.

“If the EU works with Canada in order to do economic harm to the USA, large scale tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had,” he said in a post on Truth Social.

Kyle Rodda, an analyst at Capital.com, said next week’s announcement on reciprocal tariffs may not mark the end of the Trump administration’s shake-up of global trade.

“This potentially drags out trade uncertainty even longer and raises the question of how radical a change to the global trade order is Trump trying to bring about,” Rodda said.

Reuters