Relief Amidst Persistent Concerns
Europe’s auto industry has found some respite following the recent EU-US trade deal, which has helped to ease short-term uncertainties. However, many stakeholders, especially those in the struggling German automotive sector, remain apprehensive about the long-term implications of the agreement.
After a period of intense tariff-related turbulence that threatened to escalate into a full-blown trade war, US President Donald Trump and EU Commission President Ursula von der Leyen reached an agreement on Sunday. This pact will impose a 15 percent tax on EU exports, significantly lower than the previous 27.5 percent rate for cars and vehicle parts that was introduced in April.
The new tariff applies uniformly across the board, including for European auto exports to the United States. The European Automobile Manufacturers Association (ACEA) welcomed this move, highlighting that the US is a crucial market for European vehicle exports, accounting for 22 percent of the EU’s export volume in 2024. ACEA described the agreement as an important step towards reducing the uncertainty surrounding transatlantic trade relations.
French automotive supplier Forvia also expressed support, stating that the deal helps reduce volatility and uncertainty for all economic players involved.
Despite these positive developments, concerns persist. The 15-percent tariff remains much higher than the 2.5 percent rate that European manufacturers previously faced before Trump’s return to the presidency. According to Sigrid de Vries, director general of ACEA, the 15-percent levy will continue to have a negative impact not only on the EU but also on the US automotive industry.
Challenges in the German Automotive Sector
The German auto industry is particularly vulnerable, with the United States being its top export market. Last year, the US received approximately 13 percent of Germany’s total vehicle exports. Hildegard Mueller, president of the German Association of the Automotive Industry (VDA), stated that the 15-percent tariff will cost German automotive companies billions annually and place a significant burden on them.
This situation arises at a time when major German automakers like Volkswagen, BMW, and Mercedes-Benz are already grappling with declining sales in China, weak demand in Europe, and a slower-than-expected shift to electric vehicles. The effects of the higher tariffs introduced earlier this year are already evident.
Volkswagen, Europe’s largest automaker, reported a 1.3 billion euro loss for the first half of the year due to the tariffs. Stellantis, which includes brands such as Jeep, Citroen, and Fiat, has seen a decline in North American vehicle sales. Similarly, Swedish automaker Volvo experienced a hit to its earnings from the tariffs.
Some industry leaders have proposed potential solutions. BMW CEO Oliver Zipse suggested in June that Europe should eliminate its import tariffs on cars coming from the United States. Volkswagen CEO Oliver Blume has also indicated that the company could seek its own agreement with Washington, taking into account the investments planned in the US, the world’s largest economy.
However, for now, there is little immediate relief, and carmakers will need to adapt to the new conditions. In the long term, higher tariffs in the US compared to Europe could lead to significant losses for the German automotive industry, according to Ferdinand Dudenhoeffer, director of the Center for Automotive Research institute.
If companies like BMW and Mercedes increase production in the US to avoid tariffs, they may start shipping more vehicles to Europe, which face lower import levies. Dudenhoeffer warned that this could result in reduced production at struggling European plants, potentially leading to up to 70,000 job cuts in Germany and the relocation of jobs to the US.