In May, the US announced that it was investigating whether imports of vehicles or auto parts should be subject to 25% tariffs, citing that the imports may harm the domestic auto industry. Last Wednesday, US Commerce Secretary Wilbur Ross announced that no decision has been made on the matter as decision-makers are awaiting industry input.
US tariffs on auto imports is a material risk and would be larger than other trade actions to date. The countries most exposed to these tariffs are Japan (which has a $52bn autos and parts trade deficit with the US) and Germany ($21bn).
Japan: Citi analysts estimate that the imposition of US tariffs on auto imports could have a negative impact of 0.3-0.4% points on Japan’s GDP growth. Also, Japanese carmakers may accelerate their shift of auto production to the US on a large scale – which could increase the negative impact on Japan’s economy. The US is expected to begin “free, fair and reciprocal” trade talks with Japan in July, which are likely to include a discussion on eliminating barriers to US motor vehicle exports.
Germany: Although German equities have bounced back from trade-fear-induced lows this year, Citi’s expectation is that the rebound could extend further as extreme policy measures look unlikely. However, trade-sensitive parts of the market such as autos may likely remain under pressure in the short term. German auto stocks are down 6% this year compared with -2% for French and +27% for Italian autos.