POLITICO — 2025-02-11
Automotive Industry
German automakers would face increased costs while already under pressure from heightened competition.
US President Donald Trump’s promise to implement new tariffs this week matching those of other countries would hit the EU’s automotive sector hardest in an escalating transatlantic trade war.
Trump frequently cites Brussels’ higher tariffs on vehicles as a source of his ire — the bloc charges a 10 percent import tax on vehicles compared to the 2.5% levied by the US. On top of that, senior Trump administration officials complain, is Europe's value-added tax of around 20 % — bringing the total cost to 30%.
Any Trump tariffs would hit Germany’s automakers the hardest. The big three German firms accounted for 73% of the 820,000 units exported from the EU to the US last year, according to research platform JATO Dynamics.
“We have millions of cars coming in, BMW and Mercedes-Benz and Volkswagen and just so many different cars. And we don’t do anything about that,” Trump told reporters on 3 February 2025, in his strongest direct warning to Europe’s top carmakers.
As Trump’s trade war unfolds at speed on multiple fronts, he has already imposed a 10% across-the-board import duty on China while suspending 25% tariffs against Mexico and Canada for a month. Germany’s carmakers would also be harmed by any tariffs against Mexico as many have substantial production there.
Upending global trade norms
Any increased costs on EU carmakers will put further pressure on an industry already facing declining market share in China and low demand in Europe.
“We are deeply concerned about the possible imposition of tariffs by the US,” said Sigrid de Vries, secretary-general of EU car lobby ACEA. “Instead of tit-for-tat tariffs, the EU and US should work together for a grand bargain to avoid a potential trade conflict.”
The lobbying group started the year calling for European lawmakers to preemptively strike a deal with Washington to avert a trade war. BMW has gone a step further, saying the bloc should lower its tariffs to match those of the US in an effort to appease Trump — and lower its own export costs.
BMW has a large footprint in the United States, manufacturing the bulk of its X-series SUVs at its Spartanburg, South Carolina plant, which it then exports to the rest of the world.
Such a proposal, however, would be a gift to China.
Reciprocal US tariffs would take a wrecking ball to the most-favored nation (MFN) principle that has underpinned the post-World War II trading system. Under it, countries that are members of the World Trade Organization extend their lowest tariffs on a particular good to all of their trading partners.
If the EU offers to cut its tariffs on cars to 2.5% from 10%, it would have to offer the same MFN terms to Chinese manufacturers — undermining the additional duties it imposed last year on made-in-China electric vehicles after an investigation found evidence of huge state subsidies.
“It would be a big present for countries like China that we would be reducing our duties without getting anything in return. This would go against the whole philosophy underlying tariff negotiations,” said one Brussels-based trade lawyer, who was granted anonymity due to the sensitivity of the issue.
With European carmakers in the firing line, Trump’s other protectionist moves on trade are likely to throw manufacturing economics out of whack on both sides of the Atlantic. He has also flagged 25% tariffs on imports of steel and aluminum — likely adding to input cost pressures in the US while diverting excess supply of the metals to Europe.
Worse, potentially, is a complaint already aired by senior Trump administration officials that European VAT amounts to an additional barrier on US-made autos.
“Did you know when you ship a car from the United States to Europe, if they let it in at all because they have many nontariff barriers, that between the VAT and duties, that car is taxed at 30%?” White House deputy chief of staff Stephen Miller told Fox News on Monday, 10 February 2025.
“The German car — or a European car sent to America is taxed at 2.5% — or basically zero. This is a major reason why the US auto industry has been getting hammered and hemorrhaging jobs for so long,” Miller added. “If they want to be charged less than 30%, they’re going to have to lower their barriers, so that it’s fair and equal and, yes, reciprocal treatment.”
German automaker exposure
VW subsidiary Porsche exports all of its models from the EU to the US, where it sold a record 76,000 cars last year, making it the brand’s largest market. Under pressure in other regions, especially China, the automaker is in discussions to oust its CFO and head of sales before their contracts expire.
Audi, another VW brand, similarly exports all of its models to the US from Europe, with the exception of the Q5 that is produced in Mexico.
While the US is a bright spot for Porsche, Audi saw its sales dwindle 14% last year compared to 2023. Any additional costs will just eat away at their profit margins and exacerbate the problems plaguing parent company Volkswagen.
Audi has one option that eludes Porsche, however, and that is shifting production of its Q4 to the US where Volkswagen makes its electric ID.4.
“It’s essentially the same car, and they have capacity,” said Matthias Schmidt, a European auto analyst.
As for Trump, if he is sincere about reciprocity, he would have to cut the 25% tariff on light trucks that the United States has levied since Lyndon B. Johnson was president. The duty is the main reason why US automakers still dominate the domestic market for pickup trucks, with the Ford F-Series once again the top seller last year.