Trump’s auto tariffs hit European and US producers alike – DW – 05/14/2025 | EUROtoday

Donald Trump has saved the world on edge in his second time period because the US president. Tariffs are only one a part of his agenda, however that alone has already triggered market upheavals and threatens the very foundations of world commerce.

Export-dependent nations like Germany — and particularly its automotive trade — are feeling the stress.

Around 3.4 million passenger autos had been exported from Germany in 2024, with the United States being the most important single market, in line with knowledge compiled by the German statistics workplace, Destatis.

The president of Germany’s ifo financial suppose tank, Clemens Fuest, advised Reuters this was why larger levies on car imports to the US would have an effect on “Germany’s most important export good.”

“That alone is a significant burden on the German economy,” he stated.

Many European auto makers, together with Germany’s Mercedes, have suspended or minimize full-year monetary steerage, partially attributing their transfer to Trump’s commerce tariffs.

“Assuming current trade policies persist, [earnings before interest and taxes] and free cash flow of the industrial business, as well as the adjusted returns on sales of Mercedes-Benz Cars and Mercedes-Benz Vans, will be negatively impacted,” the corporate stated in an announcement.

Stockpiling automobiles

An uncommon pattern has emerged within the world auto trade since Donald Trump unveiled his plans to tariff imported automobiles: More autos are being produced and shipped to the US than earlier than.

For Ferdinand Dudenhöffer, director of the Center Automotive Research (CAR) in Bochum, Germany, carmakers have resorted to the technique of “stockpiling exports” to beat larger duties no less than for just a few months.

They are “restocking their inventories in the US,” he advised DW, beneath makes an attempt to import as many autos as attainable, which resulted in a “short-term counter-cyclical production surge.”

Stefan Bratzel, director of the Bergisch-Gladbach, Germany-based Center of Automotive Management (CAM), shares that view, and stated that German carmakers had shipped “as many vehicles to the US as possible” earlier than the tariffs kicked in.

“In the end, prices will have to go up. Demand in the US will fall as a result, and so will revenue and profits,” he advised DW.

Reason for hope out of London

What politicians and economists worry most is the unpredictability of Trump’s commerce insurance policies.

However, the US president has additionally proven a level of flexibility in his makes an attempt to strike commerce offers. The most up-to-date examples have been provisional agreements with the UK and China wherein he lowered tariffs for sure durations.

The UK authorities in London has been in a position to scale back the tariffs by 10% on as much as 100,000 British automobiles — roughly the variety of autos the UK exported to the US final 12 months. Any autos past that quota could be topic to a 27.5% import obligation.

Complicated as it could be, Trump additionally promised that engines and plane components of UK aerospace producer Rolls-Royce could possibly be exported to the US duty-free. But, because the BBC additionally reported, that a part of the deal is much from finalized as it could require approval by the US Congress, which has a say in deciding long-term US commerce agreements.

Poison for enterprise

Trump’s erratic commerce and financial insurance policies are troublesome to deal with, accoring to the consultants interviewed by DW.

“Flexibility is key,” when confronted with Trump’s insurance policies, stated Bratzel, including, nevertheless, that the fixed uncertainty could be “poison for manufacturers and suppliers who need to plan long-term and coordinate complex supply chains.”

Dirk Dohse of the Kiel Institute for the World Economy (IfW) in Germany additionally sees uncertainty as a significant challenge for European carmakers, who’re additionally grappling with different challenges. High manufacturing prices and a scarcity of “attractive models, especially in the field of electric mobility,” he advised DW, had prompted a “loss of competitiveness against Chinese rivals.”

To keep away from excessive tariffs in the long term, some German carmakers are contemplating transferring manufacturing to the US, Dohse stated, and talked about premium carmaker Audi for instance, which is “exploring the idea” of constructing a plant there. “Looking ahead, a joint Audi-Porsche plant in the US could also be an option,” he added.

Global division of labor in danger

But investing within the US is not any silver bullet as automotive manufacturing in America nonetheless requires imported components, and that goes for American corporations too. Many elements in “American” automobiles are sourced from overseas, which makes the consultants surprise if the idea of world industrial “division of labor” is not understood by the Trump administration.

“Trump doesn’t really understand the concept or the benefits of international division of labor,” stated Bratzel, including that Trump’s so-called America First agenda might do “serious damage to US prosperity” in the long run.

US carmaker Ford Motor suspended its annual steerage earlier this month due to uncertainty round Trump’s tariffs. It stated the levies would value the corporate about $1.5 billion (€1.3 billion) in adjusted earnings earlier than curiosity and taxes.

“It’s still too early to fully understand our competitors’ responses to these tariffs,” Ford CEO Jim Farley advised analysts. “It’s clear, however, that in this new environment, automakers with the largest US footprint will have a big advantage.”

Exploring new markets

Given the upheaval brought on by Trump’s commerce coverage, German carmakers want new methods.

Dudenhöffer advises restraint, choosing a “wait and see” strategy that “doesn’t react just yet.” Because the state of affairs is extra unsure than ever, he recommended focusing future investments in Asia as a substitute.

“The most important consequence is greater geographic diversification of production,” echoed Dohse. “Companies should expand their manufacturing across more countries to be less dependent on the trade rules of any one nation.”

Bratzel cited the precept of “build where you sell” — that means manufacturing within the markets the place the autos are bought. He stated the pattern is already underway, with “more and more value creation being shifted to the regions where the vehicles are marketed.”

This article was initially written in German.