Trump's proposed car rates could trigger a global growth recession, says BAML

REUTERS / Jonathan Ernst

• A report from the Commerce Department this week was to present car imports as a threat to national security.
• This would give President Donald Trump 90 days to decide whether or not to impose the proposed vehicle rates.
• AAnalysts believe that higher costs and supply chain disruptions due to new tariffs could cause a sharp slowdown in global growth.

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President Donald Trump has doubled the threat of levies on imports of cars from Europe, which, according to analysts, could lead the global economy to a marked slowdown in growth.

"If we do not agree, we will do the tariffs," said the president on Wednesday about broader negotiations with the European Union. His administration has resorted to protectionist policies in order to gain concessions from its trading partners.

A report from the Department of Commerce submitted to the White House This week, it was widely expected that auto imports would threaten national security and give Trump 90 days to decide whether to deal with the threat of imposing import taxes of 20% to 25% on imports. vehicles and their parts.

While this may benefit some US automakers and reduce bilateral trade deficits, it could also add thousands of dollars to vehicle prices and create the risk of retaliation that could worsen global trade tensions.

"In the worst-case scenario, Titfortat's automatic tariffs could trigger a global recession," Bank of America analyst Merrill Lynch wrote in a research note published this week, adding that growth in the global economy should fall close to a 1.2% percentage point.

[Read more: The failing automobile industry is pushing us toward a global recession]

By increasing the price of imported vehicles and materials, they could threaten jobs, consumer spending and investment. Analysts have estimated that they would add between $ 2,000 and $ 7,000 to price tags for vehicles imported and manufactured in the United States, which would pose even greater risks than the global trade tensions that have emerged in the United States. ;last year.

"Auto rates will hit consumers directly in a way that other tariffs do not have," analysts said. "We must take into account the direct impact via auto sales and production as well as the indirect impact via a shock of confidence."

True, the idea that auto rates would not lead to a global growth recession is not the consensus.

According to Clifford Winston, an economist at the Brookings Institution, specializing in industrial organization and transportation, the scenario is disproportionate.

But he cautioned that higher costs would most likely have uneven consequences, leading to particular risks for the labor market. A report Center for Automotive Research projects that auto tariffs could cut up to 750,000 jobs in the US economy.

"Builders tend to take advantage of this," he said. "They can raise prices, it will hurt workers."

The effects of car rates could be even worse in Europe. In Germany, which is home to companies such as Daimler, BMW and Volkswagen, cars account for one-fifth of the country's total exports. The United States is their second destination. On Saturday, German Chancellor Angela Merkel objected to the claim that German cars were threatening the national security of the United States.

She pointed to a BMW factory located in South Carolina, which was larger than that of her home country, Bavaria.

"If these cars, which are no less of a threat than those built in Bavaria, suddenly pose a threat to the national security of the United States, then we are shocked," she added.

Experts have already clouded the outlook for the global economy and expect particularly weak growth in the euro zone. Citing trade tensions between some of the largest economies, the International Monetary Fund has lowered its global growth forecasts several times over the last year. The automotive industry has been perceived as a particular weakness, struggling with decreasing demand in recent years.

BAML

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