‘Disastrous’: Trump’s car tariffs slammed by EU governments and industry groups

Donald Trump’s 25% tariff on US car imports has been vehemently condemned by European leaders and industry groups, who warned that the duties would significantly damage the US and EU economies.

The "permanent" duties, announced last night, will also apply to car parts such as engines, transmissions, and electrical components and are expected to come into effect on 2 April.

They will “harm the US and the EU and global trade as a whole," said German Economy Minister Robert Habeck, whose country’s flagship auto sector is particularly exposed to the US market.

Habeck’s remarks were echoed by Hildegard Müller, president of German auto industry group VDA, who said the levies “send a disastrous signal for free, rules-based trade” and “will cost growth and prosperity on all sides."

Markus Beyrer, director general of BusinessEurope, an influential Brussels-based lobby group, similarly warned that the duties “could have a negative impact on existing investments on both sides."

The US is Germany’s top auto export destination, with 450,000 vehicles valued at $24.8 billion sent across the Atlantic last year, according to the US Commerce Department.

The EU’s largest economy is also the fifth-biggest car exporter overall to the US in terms of both volume and value, behind Mexico, South Korea, Japan, and Canada.

"If you build your car in the US, there will be no tariff," Trump told reporters in the Oval Office.

Market reaction

Corroborating policymakers and industry groups' fears, both EU and US car manufacturers’ stocks plummeted following his announcement.

The US ‘Big Three’ auto makers suffered a steep overall decline, with Stellantis down 3.8% and General Motors dropping 3.1%, although Ford was broadly stable.

US electric vehicle maker Tesla, owned by billionaire and close Trump ally Elon Musk, also fell 5.6%.

German car stocks also took a hit, with Mercedes-Benz down 3.5% and Volkswagen dropping 2% as of 12:50 CET.

Analysts, however, said it was difficult to predict the overall impact of the tariffs on EU car manufacturers’ profits and sales.

“We still need to do a bit of the number crunching – but there is no real data,” said Carsten Brzeski, head of macro at ING Research. “We don't know the price preference of US customers for Porsche or Mercedes.”

Brzeski added that car manufacturers could “absorb” the tariffs by taking a hit to profits, or the duties could lead to a drop in US car sales.

Alternatively, American consumers could absorb the price increases themselves by simply paying more for EU cars.

“Honestly, I have no clue which of these three scenarios will really prevail,” he said.

Sander Tordoir, chief economist at the Centre for European Reform, said that the most likely outcome is a “mix” of car price increases in the US and a reduction in EU car manufacturers’ profit margins.

He also said that the fact that German manufacturers have plants in the US offers them potential “workarounds” to “dampen the blow” of the tariffs.

“They can subtract some of the cars they export from their American plants to the rest of the world,” Tordoir said.

He noted that Washington exports significant quantities of vehicles to the EU, which also means there is “some scope for retaliation on the EU side” – as Commission President Ursula von der Leyen threatened last night.

A total of 844,000 vehicles were made by German car manufacturers in the US last year, according to VDA. The US also exported 233,600 vehicles valued at €10 billion to the EU, with the majority destined for Germany.

However, analysts broadly agreed that despite the structural difficulties currently faced by German car manufacturers, including high energy prices and rising competition from China, they are likely to survive Trump's tariff threat.

“Will these tariffs now be the final drop, bringing a certain German car manufacturer down on its knees? No,” said Brzeski. “Is it going to be painful? Sure.”

The car tariff comes just days before Trump’s much-vaunted “reciprocal tariffs," which aim to match other countries' taxes on US goods, are set to enter into force on 2 April.

Following yesterday’s announcement, the US president took to his social media platform, Truth Social, to threaten both the EU and Canada with "large-scale" levies if they coordinate their response to US protectionism.

"Large-scale tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!” he wrote.

[MM]