Weaponized trade policy: the impact of US tariffs on the European automobile sector

Abstract

With trade tensions running high, the Trump Administration is considering new tariffs on imported automobiles, and the main target would be the European Union, traditionally America’s closest ally. In this paper we combine disaggregated models to estimate the impact of these tariffs worldwide, and especially on Spain. First, a trade-policy simulation model computes the potential effects worldwide. Then we plug these into the World Input–Output Database, obtaining the inter-sectoral effects of the tariffs on Europe and the rest of the world. Finally, we insert these results into the Spanish inter-regional Input–Output Tables, obtaining final effects for Spanish regions via their inter-sectoral relations with the European Union and the rest of the world. By our calculation, the new US auto tariffs could end up destroying 10,400 jobs in Spain alone and 567,000 jobs worldwide. Moreover, they might have unexpected consequences, affecting, Spanish regions and sectors that just indirectly depend on the automobile industry.