US Car Tariffs to Disrupt Global Trade Flows worth US$500 B

JAKARTA (TheInsiderStories) – The response to the imposition of United States (US) tariffs on cars and imported parts from the European Union (EU) has the potential to disrupt around US$500 billion in trade flows, Moody’s Investors Service report on Tuesday (04/09). It said, this policy could give significant risks to global economic growth.

The tariff will automatically hinder economic momentum in Germany, Japan and Korea, but it will be lighter for China, according to, said Associate Managing Director and Chair of Moody’s Macroeconomic Economic Council Elena Duggar in a written statement.

She estimates the direct impact of tariffs to account for a 0.2 percentage point decrease in 2019 growth for Germany and around 0.3 percentage points for Japan and Korea.

“We estimate that US rates of 25 percent can result in a loss of 0.2-0.3 percentage points of export revenues for each country and a similar decrease in GDP,” she said.

Duggar stressed that the potential of US tariffs will have a material impact on the automotive industry exports from Germany, Japan and Korea, from the automotive sector export target of 13 percent, 36 percent and 33 percent of their global car exports, respectively.

Furthermore, the indirect impact of car tariffs can far outweigh the effects of direct trade because the car manufacturing industry is one of the most integrated sectors in an economy.

Among Germany’ biggest importers to the US are BMW AG (A1 stable) and Daimler AG (A2 stable) will be more exposed than Volkswagen AG (stable A3). While Japanese car manufacturers, due to their geographically diverse operations, Honda Motor Co., Ltd. (A2 stable) will be less affected than Toyota Motor Corporation (stable Aa3) and Nissan Motor Co., Ltd (review A2 for downgrade).

This US tariff will also be significantly negative for companies assessed regarding Korean automakers in the Hyundai Motor group, such as Hyundai Motor Company (negative Baa1), Hyundai Mobis Co., Ltd. (negative Baa1) and Kia Motors Corporation (negative Baa1). Localizing more production in the US can reduce the impact of tariffs on car manufacturers.

On the other side, the impact on China will be less severe because the export of “bamboo curtain country” vehicles has been subject to US trade restrictions imposed in 2018, while exposure to auto parts makers will be very low.

In addition, the imposition of automatic tariffs weighs on the profit margins of automotive companies that import into the US and affect car prices for consumers, said Moody’s.

The US government faces a deadline until mid-May to respond to a US Commerce Department report that identified imported cars and parts as a potential threat to US national security.

However, referring to the analysis of the World Trade Organization, President Donald Trump stated that EU subsidies for Airbus had a negative impact on the US, which would now provide tariffs on EU products worth $11 billion. The EU has taken advantage of US trade for years.

“This will stop soon,” Trump firmed in a written statement on Tuesday (04/09).

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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