BRUSSELS — U.S. President Donald Trump’s promise to implement new tariffs this week, mirroring those of other countries, is set to impact the EU’s automotive industry most significantly in an escalating transatlantic trade conflict.
Trump often highlights Brussels’ higher tariffs on vehicles as a major grievance — the EU imposes a 10 percent import tax on cars, while the U.S. charges only 2.5 percent. Additionally, senior officials from the Trump administration argue that Europe’s value-added tax (VAT) of around 20 percent raises the total cost to 30 percent.
Any tariffs implemented by Trump would primarily affect Germany’s automakers. The three major German car manufacturers represented 73 percent of the 820,000 vehicles exported from the EU to the U.S. last year, according to JATO Dynamics research.
“We have millions of cars coming in from BMW, Mercedes-Benz, Volkswagen, and many others. Yet, we do nothing about that,” Trump told reporters on February 3, marking his strongest warning to Europe’s leading car manufacturers.
As Trump’s trade war accelerates across various fronts, he has already enforced a 10 percent import duty on China, while temporarily suspending 25 percent tariffs on imports from Mexico and Canada. German automakers would also be adversely affected by any tariffs on Mexico, as many have significant production facilities there.
Disrupting Global Trade Norms
Increased costs for EU carmakers will further strain an industry already grappling with decreasing market shares in China and reduced demand in Europe.
“We are deeply concerned about the potential imposition of tariffs by the U.S.,” stated Sigrid de Vries, secretary-general of the EU car lobby ACEA. “Rather than retaliatory tariffs, the EU and the U.S. should collaborate for a comprehensive agreement to prevent a potential trade conflict.”
The lobbying group urged European lawmakers at the start of the year to proactively negotiate a deal with Washington to avert a trade war. BMW has suggested that the EU should lower its tariffs to align with those of the U.S. to appease Trump and reduce its own export costs.
BMW has a substantial footprint in the United States, primarily manufacturing its X-series SUVs at its Spartanburg, South Carolina facility, which it then exports globally.
However, such a proposal could inadvertently benefit China.
Reciprocal U.S. tariffs could significantly undermine the most-favored nation (MFN) principle that has supported the post-World War II trading system. This principle requires World Trade Organization members to extend their lowest tariffs on specific goods to all trading partners.
If the EU reduces its car tariffs from 10 percent to 2.5 percent, it would be obliged to extend the same MFN terms to Chinese manufacturers — effectively negating the additional duties imposed last year on Chinese electric vehicles following an investigation revealing substantial state subsidies.
“That would be a significant concession to countries like China, allowing us to reduce our duties without receiving anything in return. This contradicts the fundamental philosophy of tariff negotiations,” remarked a Brussels-based trade attorney, who requested anonymity due to the sensitivity of the matter.
With European car manufacturers under threat, Trump’s additional protectionist measures are likely to disrupt manufacturing economics on both sides of the Atlantic. He has also proposed 25 percent tariffs on steel and aluminum imports, which could increase input cost pressures in the U.S. while redirecting surplus supply of these metals to Europe.
Moreover, a complaint raised by senior Trump administration officials suggests that the European VAT represents an additional barrier to U.S.-made vehicles.
“Did you know that when you ship a car from the United States to Europe, if it is allowed entry, it is subject to a 30 percent tax due to the VAT and duties?” White House deputy chief of staff Stephen Miller told Fox News on Monday.
“In contrast, a German or a European vehicle sent to America is taxed at just 2.5 percent or essentially zero. This is a significant reason why the U.S. auto industry has been struggling and losing jobs for so long,” Miller continued. “If they wish to be charged less than 30 percent, they must lower their barriers to ensure fair, equal, and reciprocal treatment.”
Exposure of German Automakers
VW subsidiary Porsche exports all of its models from the EU to the U.S., where it achieved a record 76,000 car sales last year, making it the brand’s largest market. Under pressure in other regions, particularly China, the automaker is contemplating removing its CFO and head of sales before their contracts conclude.
Audi, another VW brand, also exports all of its models to the U.S. from Europe, with the exception of the Q5 produced in Mexico.
While the U.S. market remains a bright spot for Porsche, Audi witnessed a 14 percent decline in sales last year compared to 2023. Any additional costs could further erode their profit margins and worsen the issues facing parent company Volkswagen.
Audi has one alternative that Porsche lacks, which is relocating production of its Q4 to the U.S., where Volkswagen manufactures its electric ID.4.
“It’s essentially the same car, and they have capacity,” noted Matthias Schmidt, a European auto analyst.
If Trump is genuine about reciprocity, he must reduce the 25 percent tariff on light trucks that has been in place since Lyndon B. Johnson’s presidency. This duty is the primary reason U.S. automakers continue to dominate the domestic pickup truck market, with the Ford F-Series once again emerging as the top seller last year.
