Republican presidential candidate, former US President Donald Trump speaks to attendees at a campaign rally at the Johnny Mercer Theater on September 24, 2024 in Savannah, Georgia.
Brandon Bell | Getty Images
President-elect Donald Trump’s promise to impose full tariffs on all goods coming into the US could wreak havoc on European carmakers, with Germany’s troubled auto sector thought to be at risk.
Speaking on the campaign trail in late September, Trump announced his desire to turn German auto giants into American car companies.
“I want German car companies to be American car companies. I want them to build their plants here,” Trump said in Savannah, Georgia. He added that the word tariff was “one of the most beautiful words I’ve ever heard” and “music to my ears.”
Trump announced plans to introduce new tariffs on China, Canada and Mexico in one of his first acts in office. The measures include a 10% tariff on all Chinese products entering the US and a 25% tariff on all goods from Canada and Mexico.
Europe was not mentioned in Trump’s first tariff announcement but EU policymakers may be concerned that it is only a matter of time before the president-elect turns his attention to the 27-nation auto sector.
In Germany, the prospect of US tariffs on European cars comes at a time when top original equipment manufacturers (OEMs) are already reeling.
Volkswagen, Mercedes-Benz Group and BMW have all issued profit warnings in recent months, citing a weak economy and sluggish demand in China, the world’s largest car market.
Rico Luman, senior transport and logistics economist at Dutch bank ING, said the German auto industry appeared to be more exposed to Trump’s threats.
Germany is Europe’s biggest exporter of passenger cars to the US, worth 23 billion euros ($24.2 billion) last year, according to data compiled by statistics agency Eurostat and the ING Research. That represents 15% of Germany’s total exports to the US
Tariffs on German car manufacturers, Luman said, would make the situation worse.
“It’s the heart of the manufacturing industry, isn’t it?” Luman told CNBC via video call. “So, the automotive industry is ultimately connected to the steel industry and the chemical industry, so it’s the whole supply chain involved here.”
A German government spokesman declined to comment when contacted by CNBC.
Volkswagen, BMW and Mercedes-Benz
While some analysts have chosen not to buy into Trump’s pledge to transform German automakers into low-cost American automakers, they warn that higher U.S. tariffs will intensify challenges facing the global auto industry.
“It was a talking point on the campaign trail but there will be pressure on imports, whether that’s through tariffs, or other collective actions,” Michael Robinet, senior director of automotive consulting at S&P Global Mobility, said. CNBC via video call.
“One area that concerns many economists, including myself, is that we’re still hovering around 4% unemployment in the United States, so trying to drive more jobs in the US is going to be problematic,” he added.
Volkswagens are seen in the employee parking lot at a Volkswagen assembly plant on March 20, 2024 in Chattanooga, Tennessee.
Elijah Novel | Getty Images News | Getty Images
Apart from Trump’s proposed tariffs on China, Canada and Mexico, the US president-elect has vowed to impose tariffs of 10% or 20% on all goods entering the country. However, it is not clear whether this pledge will become US policy.
“We are reviewing Trump’s proposed tariffs,” a Volkswagen spokesperson told CNBC in an email.
The Wolfsburg-headquartered company said more than 90% of the cars it currently sells in the US market are produced in North America and meet the requirements for free trade under the free trade agreement between the US, Canada and Mexico (USMCA). .
However, it is thought that Trump’s proposed tariffs on Canada and Mexico will end the USMCA.
Meanwhile, Mercedes Benz, which employs more than 11,000 people in the US, produces mainly passenger cars and vans in 12 key locations. “We look forward to a constructive dialogue with the new administration in the US,” a spokesperson told CNBC.
BMW, which declined to comment on Trump’s tariff threats, has a nationwide footprint of about 30 locations in 12 US states, including the largest BMW manufacturing facility in the world in Spartanburg, South Carolina.
Shares of Volkswagen and BMW are down about 23% year to date, while Mercedes-Benz Group is down about 13% over the same period.
‘Everyone just needs to stay ready’
“Trump wants more tariffs, so everybody just needs to stay ready,” Julia Poliscanova, senior director of auto and e-mobility supply chains at the Transport & Environment campaign group, told CNBC via video call.
“I think it’s important that Europe continues its course, whether it’s on the European Green Deal or on the electrification agenda. Trump risks putting America behind a lot of these clean technologies and EVs, so it’s an opportunity for Europe. actually to accelerate in time one,” said Poliscanova.
“It will be bad news in the short term, for example, for German car manufacturers, but it is important to understand that this is the world. And we just need to do what is best for Europe and the interests of European industries – and that it does not diminish,” he added.
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