Trump delays decision on auto tariffs for up to six months

President Donald Trump has threatened to impose 25 percent punitive duties on autos, which has worried the European Union and Japan in particular, as well as Mexico and Canada -- but will hold off for up to six months while talks continue AFP/Justin SULLIVAN

While holding off on what would be a sizeable escalation in Trump's multi-front trade wars, the decision marks an attempt by Washington to increase pressure ahead of negotiations with the EU.

Trump directed US Trade Representative Robert Lighthizer to update him within 180 days on the outcome of negotiations with the EU, Japan and "any other country" Lighthizer deems appropriate.

By leaving the threat of tariffs hanging, Trump's move is sure to irritate major trading partners already angered by the imposition of punishing US duties on steel and aluminum last year.

Trump had been facing a Saturday deadline to announce whether to implement 25 per cent punitive duties on autos - a possibility that worried the European Union and Japan in particular, as well as Mexico and Canada.

In response to the metal tariffs, the EU, Canada and Mexico have already imposed stinging duties on American exports like motorcycles, orange juice, whiskey and blue jeans.

Trump's decision also threatened to break a truce declared last year with European Commission President Jean-Claude Juncker in which both sides agreed to cease trade hostilities while efforts continued to resolve the trade dispute.

The six-month delay had been expected this week as industry sources confirmed media reports that Trump would hold off - delighting markets which had feared sharp economic consequences of such a move.

French Finance Minister Bruno Le Maire told CNBC in Brussels on Thursday that the delay was "a wise decision."

"COMPETITION MUST BE IMPROVED"

In his proclamation on Friday, Trump described the US auto sector as facing decline due to unfair foreign competition.

A report by Commerce Secretary Wilbur Ross concluded that America's shrinking share of the auto market jeopardised its research, development and manufacturing - all "vital to national security".

In a conclusion likely to invite challenges from manufacturers, Trump said America's defense industrial base relied on the domestic auto sector for technological advances essential to US "military superiority".

Citing Ross's conclusions, Trump pointed to a doubling of US imports over the last 34 years but accused Europe and Japan of raising "significant barriers" to receiving American exports in return.

Meanwhile, the domestic market share of American-owned manufacturers fell in that same period to just 22 per cent from 67 per cent, he said.

"In light of all of these factors, domestic conditions of competition must be improved by reducing imports," Trump said.

Reacting to the announcement, Dieter Kempf, head of the German industrial federation, said "cars do not threaten the national security of the United States".

Kempf also called on the United States to publish Ross's report.

"The uncertainty created by the report is dangerous for businesses and the transatlantic value chain."

The United States imports hundreds of billions of dollars' worth a year a year in automobiles.

But, while foreign-branded autos are popular in the United States, many automakers have championed their US-based manufacturing operations in places like Alabama, Kentucky and South Carolina - warning that a fresh tariff battle would jeopardise their ability to export US-made products internationally.

"The two economic spaces need each other," said Bernhard Mattes, head of the German automakers' federation.

"The goal of the talks ought to be to broaden the possibilities for free trade."