【By Observer News Net, Wang Yi】The U.S.-EU tariff negotiations have hit a deadlock. In order not to be subjected to President Trump's tariffs on August 1st, the EU is considering taking a step back on its key product, automobiles. According to a report by the Financial Times on July 17th, regarding tariff exemptions for cars, the EU plans to abandon the complex "export offset import mechanism" proposed by German car manufacturers and instead present a more straightforward "tariff for tariff" proposal to the United States.

According to the EU's latest proposal, if the Trump administration reduces the tariff on EU cars to below 20%, the EU will cancel the 10% tariff on US car exports.

The Financial Times pointed out that this is the latest effort by the EU to quickly reach an agreement with the Trump administration, resolve the biggest obstacle, and stabilize bilateral trade relations.

In March this year, Trump announced a 25% tariff on foreign-made cars and parts, followed by a proposal to impose "reciprocal tariffs" on almost all trading partners. During a 90-day negotiation period, Trump threatened to raise the EU's existing 10% tariff to 30% from August 1st unless a new agreement was reached.

Two informed sources revealed that the US is considering that if the EU reduces the car tariff to zero, they could reduce the overall car tariff to 17.5%. Previously, the EU had considered an export offset import mechanism, where American-produced cars could enter the European market duty-free in exchange for the same quantity of cars exported to the US also enjoying tariff exemptions. However, this initial plan proposed by German car manufacturers was rejected by the Trump administration due to its complexity.

The automotive industry is the pillar of the German economy, and Trump's tariffs would cause heavy damage to it. Under pressure from German car manufacturers, German Chancellor Merkel pushed the EU to negotiate with the Trump team using the aforementioned proposal. However, this caused some dissatisfaction within the EU, as France, Italy, and other member states felt this mechanism was disadvantageous to their own car companies, as they do not have factories in the US.

New cars are parked in a logistics center in Germany waiting to be exported. Screenshot from a video

Harald Krüger, chairman of BMW Group, said, "In our discussions, I think we've come a long way to clearly state: If you jeopardize that (export) model... the US would lose."

Volvo Cars CEO Hakan Samuelsson said directly, "Germany and Sweden are major countries exporting cars to the US, and no other country in Europe does this. So we're somewhat alone in the EU." Even if the tariff is reduced to below 20%, without export offsets, they would find it difficult to operate.

A European official who is familiar with the progress of the negotiations said that the offset mechanism proposed by Germany is not suitable for all member states, and Trump is not very interested in it. Two officials told the Financial Times that Trump prefers a "simple and easy to announce" proposal, and zero tariffs are obviously more appropriate than complex offset mechanisms.

Before the US announced a series of tariffs, the EU imposed a 10% tariff on imported cars, while the US imposed a 2.5% tariff on EU-made vehicles. The US is the top export destination for EU cars. In 2023, European car manufacturers exported $58 billion worth of vehicles and components to the US, accounting for 20% of the total EU car exports, involving nearly 14 million European jobs. The US car tariffs would severely impact the EU economy.

At the same time, the Politico Europe news section reported on July 17th that the European Commission is considering a third round of tariff countermeasures, which may involve restricting US services trade and public procurement in the EU.

Four EU diplomats revealed that Maros Sefcovic, the European Commission commissioner responsible for trade and economic security, proposed this idea at a meeting on the 14th, and they are preparing for countermeasures targeting the service sector.

"Clearly, they need to start focusing on services because we are more or less exhausted on goods. If Trump brings more heavy bombs like pharmaceuticals and semiconductors, we need something on hand," one diplomat said.

According to French media, although the US has a trade deficit with Europe in goods, it has a trade surplus in services. Most of the revenue of US tech giants comes from Europe, and the US has a service trade surplus of about $100 billion annually with Europe.

However, most member states are cautious about this move, unsure what exactly it can target, and worried it might provoke further retaliation from Washington. Just like when both sides tried to reach an agreement to exempt Europe from all tariffs on its goods, but it led to Trump's threat of a 30% higher tariff.

To reach an agreement with the US, the EU previously postponed its first round of countermeasures to August 6th. On July 14th, the European Commission proposed the second round of countermeasures, covering projects worth 72 billion euros, including airplanes, cars, machinery, and agricultural products, which are awaiting approval.

The Politico Europe news section analyzed that if the situation escalates, the US's large transatlantic service trade surplus could become a critical weakness. Targeting services has always been a discussion within the EU, but as the hope of reaching an initial agreement increases, it has been temporarily set aside.

Analysts point out that the differences between the EU and the US in areas such as automobiles, safety standards, agriculture, and high-tech industries remain significant. Although neither side wants a full-blown trade war, Trump's confrontational trade policies continue to increase the risk. The EU faces a difficult choice before the August 1st deadline—continue to compromise or face a more intense tariff shock.

This article is exclusive to Observer News Net. Unauthorized reproduction is prohibited.

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