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Automotive Industry
Germany’s VDA auto industry lobby group called for de-escalation in the tariff dispute between the U.S. and the European Union after President Donald Trump said he will increase tariffs on EU cars and trucks to 25 percent from the previously agreed 15 percent.
VDA President Hildegard Müller said the costs of the higher tariffs “would be enormous for the German and European automotive industries in already very challenging times.” The tariffs would probably also have an impact on consumers in the U.S., she said.
The escalation marks a sharp reversal from tentative progress last year, when the U.S. and EU negotiated a framework to reduce trade tensions. The new tariffs threaten billions in transatlantic auto trade. Germany exported $34.9 billion of new cars and auto parts to the U.S. in 2024.
Trump said in a May 1 post on Truth Social that he was raising tariffs to 25 percent because the EU had failed to fully comply with the trade agreement negotiated with the U.S. The levies will not apply to automobiles built in U.S. facilities, he said, adding that “It is fully understood and agreed that, if they produce Cars and Trucks in U.S.A. Plants, there will be NO TARIFF.”
Speaking to reporters at the White House on May 1, Trump said the new levies would force European automakers to ‘move their factory production much faster’ to the U.S. He reiterated his claim that the EU is “not adhering” to their agreement, without providing more details.
An EU spokesperson said the bloc is implementing its commitments in line with standard legislative practice and keeping the U.S. administration fully informed throughout. The European Commission will seek clarity from the U.S. and keep its options open to protect EU interests, the spokesperson said.
German output losses could reach €30 billion
The tariff hike could cost Germany nearly €15 billion ($17.6 billion) in output, the Kiel Institute for the World Economy (IfW) said. “The effects would be substantial,” IfW President Moritz Schularick said, with output losses rising to around €30 billion over the longer term.
Other European economies with significant automotive sectors — including Italy, Slovakia, and Sweden — are also likely to suffer significant losses, the IfW said.
The German finance minister’s chief adviser, Jens Suedekum, advised caution toward Trump. “The EU should simply wait and see for now,” Suedekum told Reuters. “It is well known that Trump is quick to suspend or withdraw his grandiose tariff threats,” he said.
The president must explain why he thinks the EU is not complying with the existing trade agreement, Suedekum said, adding that it was also not clear whether there was a legal basis for the latest tariff threat.
Trump’s changing trade policies have significantly increased costs and squeezed profits for carmakers and their suppliers. BMW and Mercedes-Benz use the U.S. as a major hub for SUV production and export, but they still import from Germany other models such as the BMW 3 Series and Mercedes S-Class sedan.
U.S. auto body urges swift resolution
The tariff increase will “threaten the progress that has already been made to open EU markets and grow the U.S. auto industry,” said Jennifer Safavian, president of Autos Drive America, a trade association representing automakers based outside the U.S.
Trump did not specify how he believed the EU had failed to honor their trade pact, but the agreement had faced challenges. While the two sides reached their agreement in July 2024, EU lawmakers are yet to fully ratify the pact as they seek further amendments.
The delay centers partly on how tariffs are calculated for steel and aluminum, which are critical materials for vehicle production. In August 2024, the U.S. widened a 50 percent tariff on steel and aluminum to hundreds of new products. Companies face a difficult task calculating the tariffs, which are based on the percentage of these metals in their products.
EU lawmakers have twice paused the deal’s ratification — once after Trump sought to acquire Greenland, a Danish territory, and again after the U.S. Supreme Court invalidated the president’s global tariff regime.
Recently, the two sides had moved toward finalizing the deal, with the U.S. agreeing to revise its metals tariff calculations.
Bloomberg and Reuters contributed to this report