How will Trump's car tariffs impact Germany?

In the latest escalation of what just may become an all-out trade war between the United States and Europe, US President Donald Trump has announced a 25 percent tariff on all car imports.

The tariff is to be applied to all imported cars - including small cars, sedans, SUVs and light commercial vehicles - from April 3rd.

The new duty is expected to be especially impactful for Germany, which exports more cars to the US than any other market. Auto manufacturing has long been among the biggest industries in the country's economy.

What do the tariffs mean for Germany's car industry?

Exports to the US accounted for 13.1 percent of German automakers sales in 2024, according to figures from the Federal Statistical Office.

Germany's next largest international car buyers were Great Britain (11.3 percent) and France (7.4 percent). However, it's not immediately clear to what extent German automakers will be affected.

Many of the Germany's legacy auto brands already operate plants in the US, which will help them avoid the additional tax to some extent. However Audi, BMW, Volkswagen and Mercedes-Benz also manufacture many of their cars for the US market at plants in Mexico - and these too will be subject to the new tariff.

According to the research firm GlobalData, Volkswagen is among the brands set to be most directly affected, with about 80 percent of its US sales being imported vehicles. Mercedes-Benz was the next German brand on the list, importing around 63 percent of its cars sold in the US, followed by BMW which imports 52 percent.

The tariff is also to be applied to car parts. So for cars built in the US that contain foreign-manufactured parts, the duty would be applied just to those parts.

Stock prices for German automakers like Volkswagen, Porsche, BMW and Daimler Truck, among others, as well as parts manufacturers like Continental, were all down immediately following the announcement of the coming tariff, Reuters reported.

As of Thursday morning, Porsche slid four percent and BMW was down 1.8 percent.

Trump's auto tariff also comes on top of previous tariffs on steel and aluminium, which came into force on March 12th. 

Could this have an impact on jobs?

This comes as Germany's automakers are already facing significant challenges: in recent years they have been struggling to re-tool for electric vehicle production, and to navigate rising costs and increasing competition from international brands.

In response German legacy automakers have already planned enormous job cuts for the coming years to try and reduce costs.

READ ALSO: Is Germany really on course to cut 140,000 auto industry jobs in a decade?

It's too soon to say if tariffs will have a direct impact on jobs in Germany, but if major brands see their profits diminished they could be expected to weigh further reductions.

Furthermore if impacts to Germany's auto industry exacerbate the already languishing state of the country's economy, it could lead to knock-on effects across other industries as companies hedge their bets with further efforts to shrink budgets.

What are people saying?

Germany's Economics Minister Robert Habeck and the German automakers association both slammed the tariffs as bad for both European and US economies, with Habeck calling on the EU to "respond firmly" to the move. 

"It's important now that the EU gives a decisive response to the tariffs - it must be clear that we will not give in to the USA," the Green party politician said.

Meanwhile, the German Association of the Automotive Industry (VDA) issued a plea for bilateral negotiations between US and the EU to avoid further escalation.

"This would provide a forum for discussing the various tariff and non-tariff barriers for automotive products and could lead to a more balanced approach," the association said in a statement.  

At the EU level, Commission President Ursula von der Leyen said after the announcement that the EU will seek to negotiate solutions. The EU Commission recently postponed announced counter-tariffs on a number of US products, including whiskey, Levis jeans, peanut butter and motorcycles.

READ ALSO: Will German consumers join the growing boycott of US-made goods?

Why is Trump raising tariffs?

The US president says he wants to use the tariffs to strengthen the US as a production location and reduce trade deficits.

Until now the US had a 2.5 percent tariff on passenger cars from the EU, compared to the EU's 10 percent on US car imports. However,  the US already had 25 percent tariffs on pickup trucks and light commercial vehicles.

Trump is reportedly also bothered by other EU regulations such as strict emission and safety standards. 

Auto companies that have factories in the US can consider themselves lucky, he said.

Interestingly, Trump's so-called "first buddy" and Tesla CEO Elon Musk doesn't see eye to eye with the president on that point. 

"To be clear, this will affect the price of parts in Tesla cars that come from other countries. The cost impact is not trivial," Musk wrote on X.

Beyond direct market impacts, Trump appears to be deliberately using tariffs as a means of exerting economic pressure to achieve his goals. 

In recent weeks, the US President has announced tariffs against Mexico and Canada and then quickly repealed them after negotiating concessions from the countries' leaders.

Whatever the motive, many economics experts suggest that the most direct negative impact of tariffs would be felt by American consumers.

The Centre for Automotive Research has previously estimated that US tariffs – including those on metals and imported autos – could increase the price of a car by thousands of dollars and weigh on the US jobs market.

READ ALSO: What Trump's voting executive order means for Americans in Europe

With reporting by DPA and AFP.