Pleaserefertoimportantinformationattheendofthisreport21February2019LuigiSperanza,GlobalHeadofMarketEconomicsSpyrosAndreopoulos,SeniorEuropeanEconomistPaulHollingsworth,SeniorEuropeanEconomistandHeadofUKEconomicsStefanUbovic,MacroQuantitativeStrategistAlexJekov,FXStrategistEdmundShing,GlobalHeadofEquityDerivativeStrategyEricOynoyan,SeniorG10RatesStrategistEU:CountingCars2Nationalsecurityinvestigationintoautomotiveimports:negotiatingpositionsandnear-termoutcome(slides3-5)TheUSPresidenthas90daystorespondtotheSection232report,whichreportedlyincludesthreeoptions:a)ablankettariffonautosandautopartsof20-25%;b)moretargetedtariffsonadvancedautotechnology(suchaselectriccars);andc)acombinationoftheabove.Thenegotiatingpositionsofthetwosidesarefarapart,withthewidestgapbeingonagricultureandtoalesserextentcars.WeseeasignificantriskofescalationgiventhepoliticaltimetableandthefactthattheEUisunabletorespondconstructivelyinthenearterm.Ourcentralcaseisfortariffstobeimposed,butfortheEUtobenefitfromashort-termexemption.Currenttermsforvehicletrade(slide6)Cartariffsarecurrentlyasymmetric:theUSimposesa2.5%tariffonEU-builtcarsanda25%tariffonEU-builttrucks,buttheEUtariffforUS-builtcarsandtrucksisaround10%.TheUShasaUSD44bnvehicletradedeficitwiththeEU,equivalenttoaround0.25%ofUSGDP.Grossbilateraltrade(exports+imports)amountstoUSD80bn.Impactofcartariffsontheeconomy(slides7-13)Directandindirectautomotivemanufacturingaccountsforaround3.3millionjobs,or1.5%oftotalEUemployment.GermanyandtheCEEcountriesarethemostexposedtoanyhittotheautomotiveindustry.TheUSisthemaindestinationforEUcarexports,accountingforaround25%oftotalexportdemand.However,EUdomesticdemandisasignificantlylargermarket,absorbingaroundtwo-thirdsoftotalEUcarproduction.Includingsecond-roundeffects,weestimatetheimpactofa20-25%tariffat0.1-0.25ppofEurozoneGDP,withsomecountrieshitmorethanothers–weestimatetheimpactinGermanyataround0.15-0.45ppofGDP.ThepossibilityoftariffsaddsasubstantialheadwindtotheGermanandeurozoneeconomies,theformer,inpar...
