The Trump administration navigated its widening trade war Tuesday, preparing to meet the top European Union executive to defuse a fight over auto tariffs and offering $12 billion in aid to American farmers hurt by retaliatory measures from China.
Even as Trump tweeted Tuesday that “Tariffs are the greatest!” and boasted that his tough approach to trade was pushing partners like the EU to come to the table, the cost of his tariffs and threats are causing increasing economic pain at home and creating a domestic political problem for the president.
China, Canada and European countries have countered with levies on U.S. goods, focusing on agricultural products from the Farm Belt — the sector that is a pillar of Trump’s support. And so to alleviate the pain to some farmers, Trump’s administration on Tuesday announced a $12-billion plan for aid to those hurt by retaliatory tariffs.
The relief is intended mainly for Midwest soybean producers, as well as producers of sorghum, corn, wheat, cotton, hogs and dairy exports. Apart from dairy, California stands to get little benefit from the direct-payment programs being boosted in the Trump package because the state’s farmers tend to cultivate so-called specialty crops — nuts, fruit and produce.
Annie AcMoody, director of economic analysis for Western United Dairymen, an advocacy group, said producer prices already have fallen by 9% after Trump opened the trade war earlier this year — bad news for an already beleaguered industry. Dairy processors, she said, could benefit from the USDA's buy-back provisions, as they have in the past. California is the top dairy producer in the country, and accounts for about a third of U.S. dairy exports.
Welcome as the supports may be for some, Casey Guernsey, a spokesman for Americans for Farmers and Families, blasted the aid package and urged the Trump administration to back away from trade wars.
“Rather than accepting retaliatory tariffs and seeking to offset them with federal assistance, America’s producers believe the administration should look toward solutions that will enable them to export their homegrown goods to critical markets around the globe,” he said.
“My family got into farming to sell beef, not to accept government assistance,” he added. “While we need to hold our trading partners to account and ensure fair deals are reached, our government must also pursue long-term and sustainable solutions.”
Sen. Ben Sasse (R-Neb.), representing a big agricultural producing state, said in a statement: “His trade war is cutting the legs out from under farmers and White House’s ‘plan’ is to spend $12 billion on gold crutches. America’s farmers don’t want to be paid to lose, they want to win by feeding the world.”
The political problems that the trade disputes have already started to cause in the Farm Belt could be multiplied as higher tariffs increasingly hit U.S. manufacturers. On Tuesday, American users of foreign steel and aluminum brought lawmakers their complaints about the administration’s 25% tariffs on the metals. The Commerce Department is trying to work through more than 20,000 applications for exclusions from the tariffs, but have been repeatedly criticized for their slow response and the difficult process they have put in place.
The arrival to Washington of Jean-Claude Juncker, president of the European Commission, offered some hope of easing the increasingly acrimonious transatlantic relations.
Trump is threatening to impose 20% tariffs on imported autos and auto parts.
While hefty tariffs on imported cars could prompt more companies to manufacture in the United States in the long haul, domestic employment in the auto sector is likely to take a hit if trading partners retaliate. Consumers, meanwhile, will almost certainly pay more as car firms pass on the cost of tariffs and higher expenses from disruptions in supply chains to buyers.
Analysts at the Peterson Institute for International Economics have estimated that Trump’s auto tariffs will cause an average price hike of as much as $2,057 on compact cars and up to $6,971 on high-end SUVs, as the latter products have higher foreign content.
In a highly anticipated meeting with Trump set for Wednesday, Juncker is preparing to offer a possible deal that would slash or remove existing automobile tariffs imposed by some members of the World Trade Organization.
Juncker also could propose negotiating a limited free-trade agreement with the EU that would cover autos and other industrial goods, said a senior European official, who spoke about Juncker’s two possible offers at a briefing Tuesday in Washington.
Trump has repeatedly complained about the EU’s trade surplus with the United States, specifically railing against the existing 10% tariffs that the 28-nation union places on imported cars. The comparable U.S. levy is 2.5%.
The president is threatening to impose the new tariffs on the basis of national security. That is the same controversial rationale that he used to slap 25% levies on steel and aluminum from Europe and elsewhere, prompting retaliatory tariffs from America’s closest allies, the EU and Canada.
“We have to find some way to get out of this downward spiral,” said the official, who emphasized that both offers were contingent on Trump removing the threat of auto tariffs.
Whether Trump would accept any such proposal from the EU, however, looked doubtful, some analysts said, given the president’s increasingly aggressive and zero-sum perspective on trade.
“If that’s the approach, how do you come up with a deal that is a win-win,” asked Peter Sparding, a transatlantic fellow at the German Marshall Fund of the United States, a nonpartisan think tank in Washington.
“For the Europeans, they can’t be seen as giving in and forced into concessions,” he said. “At the same time, I don’t know if the president is willing to accept anything less.”
In recent days Trump has called the EU “a foe” as far as trade is concerned. And the president seemed to taunt Juncker before his upcoming visit by saying at a VFW Convention on Tuesday in Kansas City that trading countries were eager to negotiate now because of the threat of tariffs. “They send millions of cars — Mercedes, all of them, BMW. So many cars. I said, ‘We’re going to have to tariff your cars.’ They said, ‘When can we show up?’”
Trump’s tariffs on autos would raise the stakes, economically and politically. In proposing steep duties on auto imports, Trump is apparently aiming to reduce the U.S. trade deficit and boost domestic production and employment at home. But most economists say such actions will have little effect on the deficit, which reflects broader national investment and savings trends.
Europe’s leading car brands such as BMW and Mercedes manufacture hundreds of thousands of cars at U.S. plants in the South annually, but it would take time to ramp up production in the U.S. to match the demand of vehicles sold here. Many of their U.S.-assembled cars are exported to other countries, such as China, and European and Asian automakers export tens of billions of dollars of cars to the U.S.
The U.S. imported nearly $58 billion of motor vehicles and parts last year from the EU, with Germany leading the way.
EU leaders have publicly stated their refusal to make a deal with the threat of tariffs hanging over their heads, but they are eager to resolve a brewing trade fight that would be costly to all sides. At the same time, the EU is drawing up a list of U.S. goods that would be subject to retaliatory tariffs if Trump goes through with the new duties on cars.
“People are struggling to understand what this administration wants and how it is negotiating and whether it is in good faith,” said the senior European official, who spoke anonymously to talk candidly about internal discussions. “Constantly threatening more tariffs or unilateral actions may seem a clever negotiating tactic, but it’s counterproductive.… We want to stop putting tariffs on the United States, and we want the United States to stop putting tariffs on us.”
While not assured, the official said that Juncker, in his meeting with Trump, could float the proposal that essentially every major car producer drop its tariffs on autos to zero or the same 2.5% level, in accordance with rules under the World Trade Organization. France and Italy will not be happy with zero or 2.5% tariffs across the board, as they could come under greater pressure from from Japanese and Korean automakers.
Still, all the EU member states may go along with it for the greater goal of drawing the Trump administration into what would amount to trade liberalization under the framework of the WTO — the international arbiter of trade disputes that Trump has suggested the U.S. could do without, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute.
“It’s ultimately about whether Juncker can get Trump to bite or not,” he said.