Why EU capitals are irate at German car swap scheme to swerve US tariffs

Good morning. The good news: Donald Trump said last night the EU was “probably two days” away from receiving a trade deal offer. The bad news: it’s Trump and he could change his mind tomorrow.

Today our trade correspondent reveals the rising sense of betrayal among other EU member states at the German car industry’s bid to secure a sweetheart deal with US President Trump, and Laura reports on the EU delegation that went to Libya to talk about migration — and got deported.

Driving through

The German car industry has been pushing hard for a quick trade deal to win tariff relief from Trump — but the effort is backfiring as other member states fear they will pay the price, writes Andy Bounds.

Context: The EU is nearing an “agreement in principle” with Washington that would leave most tariffs in place while talks continue.

But Berlin is pushing hard to get a deal on cars, which currently are covered by tariffs of 27.5 per cent, thanks to the extra 25 per cent Trump imposed on “national security” grounds in March.

Advised by carmakers, whose bosses have been to see Trump in person, Germany has devised an innovative scheme — described as “delusional” by an unnamed commission official.

European carmakers would be allowed to export one car tariff-free to the US for each car they make on American soil and export.

The beneficiaries would be BMW and Mercedes-Benz, which export some US production to the EU. But many carmakers from other member states, such as France and Slovakia, do not.

Several member states in a meeting on Monday expressed doubts about the move which would penalise their companies, according to three people briefed on the discussions. They also said it would incentivise businesses to move production to the US, costing jobs.

“Between the commission and member states, there’s lots of anger at the German car industry for undermining negotiations,” one EU diplomat said. Member state representatives are meeting again to discuss the issue today.

Germany, the biggest exporter to the US, is very exposed to tariffs. The German car industry accounts for about 5 per cent of the country’s GDP.

ACEA, the car industry body, said that carmakers were losing “single-digit millions” daily. German auto exports to the US fell by 13 per cent in April and 25 per cent in May from the same months the previous year, German industry body VDA said this week.

German Chancellor Friedrich Merz is still pressing the commission to do a quick deal, which leaves 10 per cent tariffs across the board in place, even after Trump extended a talks deadline from July 9 to August 1.

“Time is money,” his spokesperson said on Monday.

Chart du jour: Trump effect

Europe is getting a little taster of a high-class problem: the downsides that come with operating a world-beating reserve currency.

Deported

The EU delegation visiting Libya yesterday was turned away in Benghazi, in a stark reality check for those who want to work with the unstable and divided country on migration, writes Laura Dubois.

Context: EU home affairs commissioner Magnus Brunner travelled to Libya yesterday together with ministers from Greece, Italy and Malta to persuade authorities to stop migrants from sailing to Europe.

The delegation was scheduled to visit both the UN-backed Government of National Unity in Tripoli, and the rival Government of National Stability in Benghazi in the east, controlled by the warlord Khalifa Haftar.

But while meetings in Tripoli went ahead as planned, Brunner and the ministers were told to return home upon arrival at Benina airport in Benghazi, according to a statement by Osama Saad Hammad, premier of the eastern government.

“They were duly informed of the imperative to depart Libyan territory forthwith and were declared persona non grata,” the statement read.

It alleged that they had acted “in flagrant contravention of established diplomatic norms and international conventions”.

Malta’s home affairs minister Byron Camilleri wrote on Facebook that the meeting was “cancelled following a protocol issue between the local authorities and the EU embassy in Libya”.

The visit marks the first time in years that an EU delegation has tried to meet with authorities in the east controlled by Haftar, and highlights the difficulties in engaging with his brutal and autocratic regime.

It is also a significant setback for European capitals which want to co-operate with north African regimes in curbing migration, despite some of them being accused of egregious human rights abuses, such as is the case with both Libyan governments.

Brunner wrote on X that the meetings in Tripoli “laid the groundwork for broader co-operation” but those in Benghazi “could not take place in the end”.

What to watch today

1. Nato secretary-general Mark Rutte meets German Chancellor Friedrich Merz in Berlin.

2. European Commission president Ursula von der Leyen and European Council president António Costa speak in the European parliament.

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