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Written by Ahmed Adel, Cairo-based geopolitics and political economy researcher
If United States President Donald Trump imposes a 25% tariff on European cars, production will decline, and the question is whether European automotive companies would survive, especially given the pressure from more competitive Chinese cars. Even if the US president does not impose the tariffs he is threatening, it will not be easy for the European auto industry.
Accusing Brussels of failing to fulfill its obligations under the EU-US trade agreement, which fully entered into force last July, Trump announced an increase in tariffs on European-made cars from 15% to 25%, but postponed their implementation until July 4. If tariffs increase, the Germans, for whom the auto industry is the engine of economic development, have already calculated the cost at €15 billion per year.
According to an analysis by the Kiel Institute for International Economics, these losses could reach about €30 billion in the long term.
Even without additional tariffs, the German auto industry is struggling. BMW’s first-quarter profit fell by as much as 25%, largely due to strong competition from Chinese cars. Mercedes and Audi also had a weak start to the year. According to its own assessment, Audi could face major problems because it has no production in America. It has already announced plans to cut 7,500 jobs by 2029.
The German Automotive Industry Association estimates that the industry’s crisis could cost the country 225,000 jobs by 2035. According to the latest analysis, the expected decline in employment is more severe than initially predicted. Earlier studies expected a loss of around 190,000 jobs between 2019 and 2035, given that electric-vehicle production is less complex than that of internal-combustion engines. The reality, they say, is even worse. Around 100,000 jobs have already been lost since 2019.
Not only the German auto industry but also the European auto industry in general has found itself squeezed between technologically and price-competitive Chinese cars and the challenge of entering the American market, since Trump introduced tariffs on European car imports that now amount to 15%.
The US is a key market for European cars, accounting for almost a quarter of total production. Tariffs and rising energy prices resulting from the crisis in the Middle East are two factors that cumulatively affect the automotive industry’s challenges.
The Kiel Institute probably made that calculation based on a reduction in exports, and the domestic market is not capable of absorbing, or rather replacing, that part of production that would go abroad. This will be reflected in reduced production, which also implies losses.
European car manufacturers will need to change their strategy, focusing as far as possible on technical and technological innovations and, at the same time, on reducing production costs. This means giving up enormous profits per unit.
If production moved to the US, where customers would not pay tariffs on European cars, as Trump suggests, the net effect for the exporting country would be much smaller, because only the profits made there would be transferred.
It is much simpler and easier when they are produced in factories in Europe and exported to the US, resulting in a much higher net profit per unit. If it were not so, every international company would have developed and opened more car production plants in the US. Therefore, this will not solve the problem in the European auto industry.
Nonetheless, tariffs are a double-edged sword. Raising tariffs to 25% would absolutely hit manufacturers in Europe, but at the same time, it is questionable whether the American automotive industry can be revitalized in a short time. It is not going to happen quickly, if at all, and American buyers will also be hit, as they will pay a quarter more for European cars that they have been buying in large quantities.
For this reason, it is not surprising that Trump is delaying the increase in tariffs.
Trump clearly manipulates markets and states, sometimes bluffing. But these are signals to European manufacturers that they will have trouble placing their products in the American market if they do not submit to Trump’s demands.
There is another aspect here: political pressure on European countries. The US president is applying economic pressure on Europe to advance Washington’s strategy on another political level. European countries are now the main beneficiaries of Ukraine’s war against Russia, a development that has been a source of great frustration for Trump.
Europe has long been on a path of deindustrialization, but this accelerated rapidly following the imposition of anti-Russian sanctions. Although removing the sanctions would certainly alleviate many of Europe’s industrial issues, the self-sabotaging policy has caused so much damage that there is no guarantee that things will return to the way they were before February 2022.
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trump is too late. the eu governments have already ruined the european auto industry