Trump’s Trade Tariffs: How Protectionist US Policies Will Hit German Carmakers

Trump’s Trade Tariffs: How Protectionist US Policies Will Hit German Carmakers

Donald Trump’s love of tariffs is well known. His administration’s protectionist stance has already put global industries on edge, but it’s German carmakers who could face some of the harshest consequences if he follows through with his trade promises in a second term.

Since his 2016 election, Trump has consistently pushed for tariffs on imported goods, and with a potential second term on the horizon, his threat to impose 10% baseline tariffs on all goods imports is becoming a very real concern. German automakers like Volkswagen, BMW, Mercedes-Benz, and Porsche are particularly vulnerable, and the prospect of hefty tariffs has already sent shockwaves through the industry. The stakes are high, especially as the US remains a key market for European manufacturers.

The Return of the “Chicken Tax” and What It Means for German Cars

In 1964, President Lyndon B. Johnson imposed what became known as the “chicken tax” — a 25% tariff on light trucks in response to European trade barriers on American poultry. The policy had lasting effects, particularly for European carmakers, who found themselves locked out of the lucrative US pickup truck market for decades. While the specifics of Trump’s tariff strategy may differ, the chicken tax offers a glimpse into the potential fallout for European manufacturers in the coming years.

Trump’s proposed 10% tariffs are aimed squarely at reducing America’s trade deficit, particularly with the European Union. The US trade gap with the EU currently stands at a staggering $312 billion, a number Trump has repeatedly cited in his speeches and campaign rhetoric. In his view, the EU is a “mini-China,” benefitting unfairly from trade agreements that, in his opinion, tilt in Europe’s favor.

If such tariffs are enacted, the cost of German-made cars could spike significantly. For instance, Audi’s popular Q5 SUV, which starts at $45,400, would see an additional $4,500 in costs due to the new tariff, making it even harder for European automakers to compete against domestic brands like Ford and Chevrolet in the US market.

German Carmakers Already in Trouble

It’s not just tariffs that are hurting the German auto industry. Companies like Volkswagen are already under immense pressure due to rising costs and challenges in the global market. In 2023, Volkswagen shipped 400,000 cars to the US, its second-largest export market after China. But with costs already rising and production cuts underway, the prospect of new tariffs could be the final blow.

The German car industry’s woes are compounded by the political turmoil back home. Chancellor Olaf Scholz’s government collapsed earlier this week, creating uncertainty about leadership in Germany as the EU braces for trade negotiations with Trump’s administration. The lack of a strong advocate in the European Union further complicates the situation for automakers who are already scrambling to adjust to the shifting landscape.

Trump’s Tariff Strategy: Aimed at Europe’s Car Industry

Trump’s protectionist policies are not just limited to cars. During his first term, he implemented a range of tariffs on steel, aluminum, and various other imports. But the automotive sector was one of the most vocal opponents of these measures, particularly European manufacturers who see the US as a critical market for their vehicles.

Trump’s rhetoric on trade has been blunt and uncompromising. He’s made it clear that he sees tariffs as a way to level the playing field and force foreign manufacturers to pay for their access to the US market. And as his second term looms, there’s little reason to believe he’ll soften his stance on trade.

The Costs of Tariffs for the German Car Industry

The immediate effect of tariffs would be felt by both German automakers and American consumers. If passed on to consumers, the increased cost of German cars would make them less competitive in a market where domestic options like the Ford F-Series pickup truck or the Chevrolet Silverado already dominate. But the impact would go beyond just the price tag.

  • Higher manufacturing costs: German carmakers will need to factor in the new tariff rates when setting their prices, potentially leading to increased production costs.
  • Lower sales: Higher prices could discourage US consumers from purchasing European cars, leading to a drop in overall sales.
  • Reduced profitability: With the additional cost of tariffs, German automakers could see reduced profit margins in the US market, affecting their bottom line.

For carmakers like BMW, Porsche, and Mercedes-Benz, who also have a significant share in the US market, this represents a serious challenge. Even the most well-known luxury brands could find themselves struggling to maintain their foothold in a market where price sensitivity is becoming more pronounced.

How the German Government Might Respond

Germany’s current political crisis only adds to the uncertainty surrounding potential trade negotiations. While Scholz’s government has collapsed, the next administration will need to quickly navigate a potential trade war with the US. However, given Trump’s stance on tariffs, it remains to be seen whether the German government will have much leverage in these talks.

One thing is clear: the German car industry, long a symbol of precision and luxury, could soon find itself fighting to maintain its position in one of its most important markets. With increasing production costs, potential tariffs, and a weakened political situation at home, the future of German carmakers in the US is anything but certain.