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Trump threatens tariffs on EU cars as US factories ‘slump’ on trade war pressures

Anna Isaac
US President Donald Trump said he will impose tariffs on imports of EU cars if the bloc does not remove its trade barriers. These barriers have been partially increased following Mr Trump's adoption of levies on EU metals imports - REUTERS

President Donald Trump has fueled trade war fears by pledging to impose tariffs of 20pc on imports of EU cars if trade barriers are not "broken down".

The EU on Friday brought into force extra taxes on flagship US goods such as Kentucky whiskey, Levi Jeans, and Harley Davidson motorcycles in response to Mr Trump's levies of 25pc on steel and 10pc on aluminium imports. 

This latest tit-for-tat step marks a further stage of escalation in the mounting trade war between the US, its closest allies and China since Mr Trump ignited a trade conflict with metals levies.

Mr Trump's statement on social media platform Twitter threatens to add to his lengthening list of import taxes on hundreds of billions of pounds worth of goods. 

Mr Trump said: "Based on the Tariffs and Trade Barriers long placed on the US and it [sic] great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20pc Tariff on all of their cars coming into the US. Build them here!"

This is a repeat of a similar threat made in March, and which was made despite the German car industry employing 36,000 workers in the US. 

It comes as US ambassador Dennis Shea, challenged the processes of the World Trade Organisation – arbiter of global trade disputes – by threatening to veto rulings if they take longer than 90 days to be agreed.

This is the latest assault on the WTO by the White House, after Mr Trump labelled the organisation a "catastrophe" earlier this year.

The escalating conflict now risks overturning the global economic growth, according to bodies such as the International Monetary Fund and credit ratings agency Moody's.

EU and US car manufacturing stocks both fell on the news. Shares in Italian car-maker Fiat Chrysler were particularly hard hit, dropping by more than 3pc. German car brands Daimler, Volkswagen and BMW, for which the US is a major export market, also fell. 

On Wall Street, the Dow Jones US auto index , which includes the likes of Ford and General Motors, shed 1.4pc following the tweet.

Fed chairman Jerome Powell has separately warned that US firms are losing confidence as a result of global trade war fears, dropping plans to invest in companies and hire workers.

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Mr Trump's announcement comes as fresh figures have revealed that US manufacturers are under strain, as trade war tariffs drive up their input costs.

Growth in manufacturing dropped to a nine month low in June, according to IHS Markit’s Purchasing Managers Index, an influential private sector survey.

Tariffs have caused additional price hikes, hitting factories hard as demand for other key inputs is already outstripping supply in the booming US economy. The amount of time factories spend waiting for supplies has hit a record high, the worst in 11 years, the survey showed. 

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This comes as inflationary pressures are building in the US, causing its central bank, the Federal Reserve, to speed up its plans for interest rate hikes, in order to get a grip on price growth. Officials now expect there to be four rate hikes this year.

A boom triggered by Mr Trump's large corporate tax cuts has caused the US economy to pick up pace, but fears are growing about the long-term impact of this move. The stimulus effect on the economy from tax cuts risks wearing off at a time of mounting trade tensions between the US and its most important trading partners.

Chris Williamson of IHS Markit said: “Exports are back in decline, showing the worst performance for over two years, causing factory order book growth to slump sharply lower compared to earlier in the year.”