The European counterattack, a response to the administration’s measures on steel and aluminum imports, is set to go into effect Friday and will add another front to a trade war that has engulfed allies and adversaries around the world.
GOTHENBURG, Sweden — The European Union is making good on its threats to retaliate against the Trump administration’s tariffs, moving to slap penalties on $3.2 billion of U.S. products made by the president’s political base, like bourbon, motorcycles and orange juice.
The European counterattack, a response to the administration’s measures on steel and aluminum imports, went into effect Friday and adds another front to a trade war that has engulfed allies and adversaries around the world. China and Mexico have already struck back with their own tariffs, and Canada, Japan and Turkey are readying similar offensives.
The risk of escalation is high because President Donald Trump has promised even more tariffs. Taking aim at German car manufacturers, the president has started an investigation into automobile imports to determine whether they pose a national-security concern, the same justification as he used for the metal tariffs.
“You look at the European Union,” the president told a crowd in Duluth, Minnesota, on Thursday. “They put up barriers so that we can’t sell our farm products in. And yet they sell Mercedes and BMW and the cars come in by the millions. And we hardly tax them at all.”
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The United States is fighting from a position of strength, with the U.S. economy on track for one of its strongest years in a decade. Europe doesn’t have the same defenses. Growth in the region is slowing, and that weakness has been compounded by political turmoil in Italy and Germany, as well as Britain’s decision to leave the European Union.
But in a trade war no sides are left unscathed. Although Trump has sought to exert pressure on other countries, the global nature of supply chains means the tit-for-tat tariffs are ricocheting in unexpected ways and may ultimately cost jobs in the United States. Sales of Mercedes SUVs, made in Alabama by the German automaker Daimler, will most likely be hit by the U.S. trade dispute with China. The Swedish manufacturer Volvo faces rising prices on the imported steel it uses at its Mack Truck factory outside Allentown, Pennsylvania.
The path to reconciliation is shrouded in uncertainty, creating the potential for broader strain in the global economy. While the Trump administration has sought to use economic force to exert concessions, the successive drumbeat of attacks has left little time to negotiate. Formal trade talks between Brussels and Washington, D.C., have broken down, although informal channels have remained open.
The European Commission, the bloc’s administrative arm, applied its sanctions more than a week earlier than expected, in what analysts said was a show of strength. “It’s a signal that the EU is striking back and taking this seriously,” said Holger Schmieding, chief economist at Berenberg Bank in London.
The new slate of European tariffs focuses on products that tend to be manufactured in Republican strongholds: whiskey and playing cards from Kentucky, recreational boats from Florida, and rice from Arkansas.
But trade wars don’t play out that neatly. It’s not easy to strike precise targets without collateral damage. Take the Mack Truck factory in Pennsylvania. Mack may be a quintessential American brand, but it’s owned by Volvo Group, which is based in this seaport on Sweden’s southeastern coast.
The Mack plant uses specially treated steel imported from Europe. American substitutes are not readily available, if at all. That means the Allentown factory has to pay 25 percent more for some kinds of steel, putting it at a disadvantage with its competitors who manufacture in Mexico and can get the same high-quality steel without paying the Trump tariffs. At least for the moment, vehicles made in Mexico are not subject to tariffs when they are imported into the United States.
Billy Joel sang about Allentown as the city where “they’re closing all the factories down.” The Mack Truck factory, in the Allentown suburb of Lower Macungie Township, has been an exception. It is “packed with orders,” said Martin Lundstedt, the chief executive of Volvo Group, a manufacturer of trucks, buses and heavy equipment that is separate from the company that makes Volvo cars.
But he worried that demand could slip if costs in the United States rise and the trade dispute triggers an economic slowdown. “Yes, it will affect us and we need to live with it,” Lundstedt said. “It could be that if you have production in the U.S. you are punished.”
It’s a similar concern for ABB, a supplier of heavy electrical equipment based in Zurich. ABB makes electrical transformers in South Boston, Virginia and Crystal Springs, Mississippi.
“We use a very specific kind of steel,” said Ulrich Spiesshofer, the chief executive of ABB. “The capacity and the number of players for that kind of steel is very limited. The steel that we import from other places is being punished.”
Eventually the competitiveness of the U.S. plants could suffer, Spiesshofer said.
Daimler, the maker of Mercedes cars, has already been caught in the crossfire between the United States and China. The company issued a profit warning Wednesday, in part blaming tit-for-tat tariffs for a slump in the sales of SUVs, which are built in Tuscaloosa, Alabama.
In retaliation for tariffs imposed by the United States on Chinese goods, China has threatened to increase tariffs on U.S. cars from 15 to 40 percent. That would hurt sales in the huge Chinese market by raising sticker prices for Mercedes from Alabama as well as BMWs made in Spartanburg, South Carolina.
“Fewer than expected SUV sales and higher than expected costs — not completely passed on to the customers — must be assumed because of increased import tariffs for U.S. vehicles into the Chinese market,” Daimler said in a statement late Wednesday.
Last year, BMW exported about 80,000 vehicles to China, including its X5 SUV, from the Spartanburg plant, its largest factory in the world. BMW said in a statement on Thursday that it did not need to revise its outlook for profit because of trade tensions, but the company added that it “continues to observe international developments closely.”
Shares of major German and U.S. carmakers fell sharply Thursday on worries of a trade-related slowdown. Daimler shares closed down more than 4 percent in Frankfurt, Germany, trading and BMW shares were off 3 percent.
If the trade conflict continues, companies could consider relocating assembly lines to other countries, leading to job losses in the United States. BMW already has factories in South Africa and China, among other countries.
Carmakers would not make such a decision lightly. Moving manufacturing is expensive and takes years to carry out. The German carmakers continue to hope that the conflict will blow over and perhaps even provide a catalyst for removing trade barriers with the United States.
Currently the United States charges a 2.5 percent levy on imported foreign cars while Europe imposes a tariff of 10 percent on cars from the United States. German automakers would be happy if tariffs fell to zero in both directions, though only as part of a broad trade pact, Eckehart Rotter, a spokesman for the German Association of the Automotive Industry, said Thursday.