The trade war could be just another pre-war act before the actual conflict about the tariffs

Sighs of relief could be heard in Berlin, Tokyo and Seoul when the US administration recently delayed for 180 days its final decision on the imposition of global tariffs on automotive products, pursuant to an investigation conducted by the US Department of Commerce under so-called Section 232 national security provisions.

Most observers attributed this delay to a desire on the part of the administration to avoid escalating tensions with key trade partners while tensions with China reach a boiling point

Automotive trade is massive, so the stakes here are high. Total global automotive exports were a staggering US$744.7 billion in 2018. That’s the third largest product category worldwide, trailing only crude oil and refined petroleum. The top seven automotive exporters – and those who would be hit hardest by tit-for-tat auto tariffs – are: Germany, Japan, the US, Mexico, Britain, Canada and South Korea.

While the US-China trade impasse has been regarded as one of the most serious threats to the stability of the global trade system in decades, it has mostly involved the two chief protagonists, and the impact on third countries has mainly been  collateral damage. The imposition of global automotive tariffs could actually have deeper repercussions and ultimately prove to be more disruptive, as more countries – some of the leading trading nations in the world – are drawn directly into the fray.

The disruption caused by an initial application of US automotive duties (expected to be in the range of 25 per cent) would then be multiplied by retaliatory actions taken by the leading auto exporting countries. The disruption caused by an initial application of US automotive duties (expected to be in the range of 25 per cent) would then be multiplied by retaliatory actions taken by the leading auto exporting countries.

These would hit not just the US auto industry but other sectors carefully selected to inflict maximum damage, both economic and political. So, for example, should the US move forward with auto tariffs, the already battered US  farm sector (along with other vulnerable sectors) should assume the brace position.

When assessing the potential impact from automotive tariffs, the mind naturally tends to gravitate towards BMWs, Toyotas and Hyundais. And rightly so – these companies and countries are among the major suppliers of foreign cars in the United States. But don’t forget about China. The automotive investigation includes not just finished motor vehicles, but also automotive parts.