Trump’s threat to EU auto exporters spooks steelmakers

A number of tier-1 European steelmakers are increasingly more concerned about potential tariffs for European cars sold into the US than the direct tariffs on steel under the country’s Section 232 plan, mill sources said Thursday.

The US is the largest export market for an industry that produced 19.2 million vehicles in 2016, according to figures published by the European Automobile Manufacturers Association (ACEA).

US President Donald Trump has been a vocal critic of the trade deficit the US has with European automakers and has warned of a “tax on their cars.” Such a move would be a significant threat to a trade flow that saw the US import 1.17 million EU-made passenger cars in 2016.

A source at a German steel mill said the concern for the automotive sector is far greater than the potential lost steel exports to the US. “Our concern is if this escalates and goes into cars — 25% of German cars go into the US market,” the source said.

The automotive production hub in Europe is in Germany, with numerous service centers almost entirely focused on supplying the sector. In 2016, Germany produced more than 5.5 million passenger cars, with a further 550,000 commercial vehicles. ThyssenKrupp, ArcelorMittal and Salzgitter are major domestic automotive steel suppliers, with significant long-term contracts dependent on the success of the industry.

“If we start a real trade war between Europe, [the] US, China, whoever, this could affect the steel demand and this is a much worse scenario,” another European mill source said, noting that the European Commission has escalated tensions by proposing retaliatory measures for Harley Davison motorcycles and American whiskey.

The European hot-dip galvanized market has been reshaped in recent years to tailor to automotive grades, to the extent that many industrial-grade buyers are concerned by limited supply options. But a trade war with the US would cause significant problems for a key end-user industry that already faces headwinds.

ACEA forecasts new car sales in the EU to slow to 1% growth in 2018, following growth of 3.4% in 2017, when vehicle sales totaled more than 15 million for the first time since 2007.

EU legislation bringing forward CO2 targets for cars and vans, plus the potential disruption from Brexit, have dampened the overall outlook. ACEA Secretary General Erik Jonnaert is keen to avoid further obstacles, calling this week for international trade rules to be respected.

“European manufacturers do not only import vehicles into the US, but that they have a major manufacturing footprint there, providing significant local employment and generating tax revenue. Indeed, some European manufacturers have their biggest plants not in the EU, but in the US,” Jonnaert said.

Peter Brennan, PLATTS