What's Standing Between You and a Future Citron or Peugeot? Possibly, a Tariff

The threat of new import tariffs has PSA Group worried about its plan to return to the United States. Following President Trump’s proposal to levy a 25-percent tax on steel imports and a 10-percent tariff on inbound aluminum, Europe balked at the suggestion, leading to further threats of a car tariff.

Right now, the U.S. levies a 2.5-percent tax on imported European vehicles, far less than Europe’s 10-percent tariff on vehicle travelling eastward across the Atlantic. There’s a 25-percent U.S. tariff on European vans and trucks, too, which explains why crates of Mercedes-Benz van components sail into the port of Charleston, South Carolina at regular intervals.

According to Trump, any European retaliation against the proposed metal tariffs — which seem all the more likely given yesterday’s resignation of the president’s pro-free trade economic advisor, Gary Cohn — would see the U.S. ratchet up its car tariff. If the scenario comes to pass, your dreams of one day buying a new French car in America could easily be dashed.

Speaking to Automotive News at the Geneva Motor Show, PSA Group CEO Carlos Tavares said he’s watching the situation closely. A new vehicle tariff could make the automaker reconsider its 10-year U.S. re-entry plan.

“If the overall framework of tariffs change, it may have an impact on our strategy,” Tavares said Tuesday. “That’s clear, because if we don’t have a profitable business plan, then we don’t go.”

Under the existing plan, the maker of Citroën, Peugeot, and DS vehicles wants to gradually ease back into a market it vacated in 1991, first with ride-sharing programs and other mobility efforts, and later with its own vehicles. A full return would occur by 2026. PSA already has a staffed North American headquarters in Atlanta guiding the initiative.

“The tariffs, if they were to exist, would have an impact on the way we go to market, because we have a very staged and step-by-step approach,” Tavares said. “That means that at the beginning we would source the cars from outside the U.S., given the very limited volumes. If this was to change we would have to reassess our strategy.”

While German automakers like BMW, Mercedes-Benz, and Volkswagen already have a strong U.S. manufacturing presence, Trump’s threats aren’t being taken lightly. German automakers imported half a million vehicles to the U.S. last year. According to Germany’s Center for Automotive Research, boosted European car tariffs could cut the automakers’ profits by 10 percent.

“Roughly speaking, German carmakers achieve between 10 and 13 percent of their profits in the US,” Metzler bank analyst Jürgen Pieper told Deutsche Welle. “Should a 10 percent duty be imposed, that would perhaps reduce profits in the US by a third.”

As for PSA, Tavares isn’t freaking out just yet. Taking an optimistic tone, the executive said, “Of course, we prefer global trade and we prefer open markets. That’s much better for everybody at the end of the day. I feel that good sense will prevail.”

[Image: PSA Group]