Likely No Swift Resolution for EU Car Manufacturers in U.S. Tariff Conflict
With President Trump pushing to rectify what he sees as long-term unfairness from the EU, the automotive sector is bracing for an extended spat over tariffs. The EU, acknowledging the unfairness of its 10% tariff, has suggested dropping it to align with the U.S.'s 2.5%, but the U.S. is upping the ante by protesting the EU's 20% VAT, making the effective tariff rate an apparent 30%.
Former U.S. ambassador to the EU, Gordon Sondland, believes that Trump aims to address not just tariffs but also corrupt non-tariff barriers. He told BBC's NewsNight program that it's high time EU products were treated like those from the U.S., with EU citizens enjoying American food and vehicles without bringing their own.
The yearly overall trade deficit with the EU averages around $160 billion, with German industry accounting for roughly $75 billion. Trump has threatened to reveal proposals for new auto tariffs on April 2nd. Previously, he imposed 25% duties on EU steel and aluminum and, while temporarily suspending it for Mexico and Canada, described the EU's trade policy as "an atrocity."
These escalating tensions are especially harmful to European luxury carmakers, led by German giants like Volkswagen, Audi, Bentley, Mercedes, and BMW, which is also the owner of Rolls Royce. Volkswagen and BMW manufacture vehicles in the U.S., with BMW also making cars in Germany and China. Chinese-owned Volvo and Indian-owned JLR are other key players.
Proponents suggest that the U.S. could become an attractive location for Porsche and Audi to establish factories. However, Professor Stefan Bratzel, director of Germany's Center of Automotive Management, warns of a long, challenging period for German manufacturers, with several hurdles ahead. Settling on tariffs, implementing manufacturing in the U.S., and creating vehicles that satisfy the American market's demands would all be substantial undertakings.
Admitting to unfavorable treatment, Stephen Miller, White House Deputy Chief of Staff, declared: "When you ship a car from U.S. to Europe, if they let it in, the VAT and duties tax it at 30%." Miller emphasized that U.S. auto manufacturers, "haemorrhaging jobs," need tax treatment equal to that of their exports to Europe.
However, implementing reciprocal tariffs could have unforeseen consequences. In 2026, the EU's Carbon Border Adjustment Mechanism will tax carbon-heavy imports, which Trump might see as a tool to force the U.S. to comply with the Paris Climate Change Treaty. It's a complication that Trump is likely to confront eagerly.
- German car makers like Volkswagen, Audi, Bentley, Mercedes, and BMW are concerned about the potential impact of auto tariffs proposed by President Trump.
- The U.S.'s upping of the ante includes protesting the EU's 20% VAT, which makes the effective tariff rate appear to be 30%.
- Former U.S. ambassador to the EU, Gordon Sondland, believes that Trump is aiming to address not only tariffs but also corrupt non-tariff barriers in EU trade policies.
- If the U.S. implements new auto tariffs, it could potentially attract luxury car manufacturers like Porsche and Audi to establish factories in the U.S., according to proponents.
- However, Professor Stefan Bratzel warns of a long, challenging period for German manufacturers if they decide to settle on tariffs, implement manufacturing in the U.S., and create vehicles that satisfy the American market's demands.
- Stephen Miller, White House Deputy Chief of Staff, has pointed out that U.S. auto manufacturers are suffering from job losses due to unfavorable tax treatment in EU trade policies.
- The EU's Carbon Border Adjustment Mechanism, which will tax carbon-heavy imports in 2026, could be seen as a tool by President Trump to force the U.S. to comply with the Paris Climate Change Treaty, creating a complex situation for potential tariff implementations.
